Spain could attract a new wave of British holidaymakers following evidence that resort prices have crashed by as much as 40 per cent compared to five years ago.

A fall in local prices on everything from a restaurant meal to suncream has combined with the fact that the pound is at a two year high against the euro to make the Costas more affordable.

The claims come from an annual survey conducted by the Post Office, which measures the prices of eight items in resorts across 33 destinations around the world

Spain comes out as the second cheapest destination with a price of £37.72 for the eight items, while Sri Lanka, which has seen serious political unrest, was the best value at just £27.95.

At the other end of the scale was Australia at a staggering £115.69 for the same items, together with Barbados, Singapore and New Zealand.

The number of visits by Britons to Spain has slumped by more than three million over the past five years, coming down to less than 10.5million

High prices, the cost of living squeeze and a desire among Britons to try new and more exotic locations have all played their part in the fall.

However, the Post Office research suggests Spain will now become more attractive, particularly at a time when people are desperate to save money.

The firm’s Holiday Money Report concluded: ‘Resort prices in the Costa del Sol are now 40per cent lower than five years ago, when we conducted the first price barometer.

‘The cheaper cost of travel to Spain will make it a compelling choice for bargain hunters. So does the rising value of the UK pound - up 6.4 per cent against the euro in the past three months.’

The eight items included in the price comparison are a cup of coffee in a bar or café; a bottle of local beer; a can of Coca-Cola; a 1.5 litre bottle of mineral water from a supermarket; a bottle of suncream; insect repellent; a pack of cigarettes; and a three course evening meal for two adults, including a bottle of house wine.

The fact that the selection of items is small, while they are not bought from exactly the same outlet every year, suggests the figures can be skewed. However, they give a general indication of the shift in prices.

The researchers found resort prices have risen in two-thirds of the destinations it surveyed. The biggest rises were recorded in Kenya, where the basket was 52 per cent more expensive than a year ago, and Portugal, where the increase found was 39 per cent.

However, the report found that sterling is stronger against 29 other major currencies than a year ago, which should help offset higher resort prices.

Turkey has seen a tourism boom in recent years on the basis of its perception as a cheap option. This year, it only placed 17th in terms of the cheapest option, while it was 60per cent more expensive than Spain.

The Post Office head of travel money, Sarah Munro, said: ‘Given that sterling is worth around 20 per cent more than a year ago against the Turkish lira, we expected to see a lower barometer cost for Turkey, especially as the country had a disappointing 2011.

‘However, we were surprised to find that local costs have actually risen by 21 per cent and it is only the strong sterling exchange rate that is masking that increase.

‘It will be interesting to see how Turkish resorts respond to the challenge presented by Spain and Portugal. With Greek tourism also facing a fight for survival, we could see a price war between the eastern and western Med in 2012.’
Italy came out as the most expensive European destination with the basket of items costing £89.03.

Miss Munro said: ‘The message that came out clearly from our holiday budgeting research was that 2012 will be all about affordability. Holidays may still be a priority but they are not a necessity and people will not knowingly get into debt to fund them.

‘The winning destinations will be those that offer good value not just for flights and accommodation, but for tourist staples like meals out and drinks.”

‘However, it will pay people to keep a watchful eye on exchange rate movements as well as considering easy ways to save money.’