Yes, that is what I thought. The solutions to the question do not agree with this though. I have attached the part of the solution relating to the manometer as the overall question asks to calculate the speed V2. I don't know if this changes anything?
I also emailed my lecturer about this, however his explanation is fairly unsatisfactory as I still don't understand how the height between 1 and the stagnation point cancels. He said:
"The fact that the lower branch of the tube is directed into the flow signifies that stagnation pressure acts there. The change in height between point 1 and the tube entry is canceled out in when calculating the pressure acting at the level of the gauge fluid (water) in the manometer. That is you could take BE between point 1 and tube entry, then relate pressure at tube entry to gauge fluid level, which gives the same result."