Manuel's English Would Have Gotten Better Over the Course of the Series
Obviously the show requires a little suspension of disbelief, but one thing about it has always bugged me: by the final episode, it's revealed that Manuel has been working at Fawlty Towers for a year (they mention that's how long he's had his pet "hamster"), which means he's been living in England for probably a little more than a year. Whenever you live in a foreign country that long, you automatically start picking up the language. Furthermore, from what we see, Manuel never interacts with anyone else in Spanish; he is surrounded by English co-workers, staff, and guests and must interact with them on a daily basis.
I find it incredibly unbelievable that even by the final episode, Manuel would still have such a poor grasp of English and be so easily confused by complete sentences.