The pound hit €1.20 against the euro last night for the first time in more than two years as figures suggested Germany was on course for a recession.

Sterling was up by nearly a cent against the single currency at levels not seen since April 2022 – as monthly business survey data showed a stark contrast between the UK and eurozone.

In a buoyant session for the pound, it was also ahead against the dollar at $1.3359, a two-and-a-half year high. Experts at Goldman Sachs predict it will hit $1.40 within 12 months.

In a note to clients yesterday, experts at Deutsche Bank – Germany’s biggest lender – said there was still ‘scope for sterling to appreciate’.

They suggested that over the past two years, Britain has had ‘the best data in the world’ with the economy consistently outperforming expectations – and the Bank of England more cautious than other central banks about cutting interest rates.

‘This has made for a sweet spot for the currency that we see continuing through to year end and over risk events such as the autumn Budget,’ Deutsche’s experts said.

The euro’s weakness yesterday came after purchasing managers’ index (PMI) figures showed a deepening downturn in Germany, the continent’s biggest economy, with jobs being cut at the fastest rate since the pandemic.

It was the latest blow to the beleaguered eurozone. In the UK, growth – though lower than expected – still easily outpaced its European rivals.

In Germany, September’s PMI – a monthly reading of private sector activity – sank to 47.2, a seven-month low. 

Any reading below 50 signals business activity shrinking.

The report suggested that the economy shrank by 0.2 per cent in the third quarter, following a contraction of 0.1 per cent in the previous period.

If confirmed by official figures, that would meet the technical definition of recession.

Once the continent’s industrial powerhouse, Germany has become widely derided as the ‘sick man of Europe’. Much of its decline is down to the shrivelling stature of its huge car industry, which is grappling with the disruptive switch from petrol and diesel towards electric vehicles.

China also plays a role with its demand for German cars deteriorating. At the same time, it ships cheap cars to Europe, hurting Germany’s car makers. Volkswagen, Europe’s biggest car maker, is considering factory closures in the country for the first time in its 87-year history and could reportedly cut up to 30,000 jobs.

Cyrus de la Rubia, chief economist at commercial bank HCOB, said: ‘The downturn in the manufacturing sector has deepened again, evaporating any hope for an early recovery.

‘In a sign of resignation, companies have shed staff at a rate not seen since the Covid-19 pandemic in 2020. A technical recession seems to be baked in.’