The pound slumped to an eight-year low against the euro on Wednesday as the prospects for the eurozone and UK economies continued to diverge. Sterling also fell against the dollar.
One pound now buys just €1.0833, a level last reached in 2009, aside from a brief “flash crash” in October. The euro gained after a series of positive economic updates for the single currency area.
European manufacturing firms reported a strong August, according to an IHS Markit survey published on Wednesday.
The latest purchasing managers index readings signalled a continuation of the recent strong performance of the eurozone economy.
The PMI came in at 55.8, up marginally from 55.7 in July. Anything over 50 indicates expansion and the figure is seen as a good indicator of future GDP.
The IHS Markit survey for the German economy separately showed that the country is also growing faster than expected.
That contrasts sharply with the picture in the UK where inflation has outpaced wage growth in recent months and GDP forecasts have been revised down as gloom over Brexit gathers.
The Government has apparently made little progress in EU divorce negotiations, increasing the likelihood of a prolonged period of uncertainty which could hamper investment.
The euro’s rise comes as European Central Bank president Mario Draghi issued a staunch defence of the eurozone’s loose monetary policies..
Mr Draghi did not signal that the ECB might begin tapering off its €2 trillion (£1.8 trillion) asset purchase programme and move towards raising interest rates soon.
Pressure to do so will increase if signs of a cyclical recovery mount. Such a move would likely see the single currency strengthen further.
Speaking at the Lindau meeting of Nobel laureates in Germany, Mr Draghi rejected the idea that negative interest rates and massive money printing operations by central banks have grossly distorted financial markets and done more harm than good to economies.
The pound now buys just under $1.28.