Where your holiday pound could be worth more in 2012

The Eurozone crisis could boost our holiday spending power and here are ten resorts where costs are plummeting.

Since the euro launched in January 1999, the value of the British pound on the Continent has varied wildly.

When the euro arrived 13 years ago, £1 would buy you roughly €1.41. In April 2000, when the pound was at its strongest, a quid would buy almost €1.80, making this a 'golden age' for British holidaymakers in Europe.

The decline of the pound

However, over the next decade, the pound gradually weakened, reaching an all-time low against the euro in December 2008. At that time, £1 was worth less than one euro, largely thanks to the pound being battered in the global financial crash.

Frankly, it's disheartening to think that in the summer of 2007, before the credit crunch hit, British travellers were getting €1.50 to their pound. Today, this exchange rate has slipped to exactly €1.20 to the pound, so your holiday money has fallen in value by about a fifth (20%) in four and a half years.

Time for a comeback?

However, given the ongoing debt crisis in the Eurozone, some economists argue that the pound is set to stage a comeback against the European currency. Indeed, foreign currency (FX) traders point to the pound's recent strength against the euro - up over 6% in three months - with many predicting that this trend will continue in 2012.

Of course, if the situation gets any worse for the Eurozone's PIIGS (the weaker economies of Portugal, Ireland, Italy, Greece and Spain) then the value of the euro could decline steeply and rapidly. If this were to happen, British holidaymakers would benefit, as the pound would become more valuable overseas, thus buying more and going further.

Where your pounds are powerful

So, if you're looking for a value-for-money or bargain holiday this year, where will your pound go furthest?

According to the latest Holiday Money Report (PDF document) from Post Office Travel Money, Spain is now Europe's cheapest destination for British tourists. In fact, holidaying in the Costa del Sol now costs two-fifths (40%) less than it did five years ago.

The Post Office predicts that European holiday destinations could be 2012’s big winners, with tighter travel budgets and a stronger pound drawing families back to Mediterranean resorts.

In addition, the Post Office's research found that the British pound has strengthened against 29 popular currencies over the past year. Sterling's biggest gains came against the Turkish lira (20.5%), South African rand (18.3%) and Brazilian real (12.3%).

Ten bargain resorts

To compare spending costs around the world, the Post Office adds up the cost of these eight items:

1. Cup of coffee
2. Bottle of local beer or lager
3. Bottle or can of Coca-Cola
4. 1.5-litre bottle of mineral water (supermarket)
5. Tube of sun cream (factor 15)
6. Insect repellent (supermarket)
7. Pack of 20 Marlboro Lights cigarettes
8. Three-course evening meal for two adults in a local restaurant, including a bottle of house wine

Of 40 destinations surveyed by the Post Office, Sri Lanka had the lowest resort costs by far, at £27.95 for the above items. This is almost a third (31%) cheaper than last year's bill, lifting Sri Lanka from fifth place in last year’s poll to first place this year.

These are the 10 cheapest resorts found by the Post Office:

However, some of these far-flung destinations are expensive to reach, thanks to the higher flight costs and extra taxes associated with long haul air travel. Hence, cheap air fares should tip the scales in favour of European resorts for bargain-hunting travellers.

Ten pricey places to go

The Post Office's sixth yearly survey of holiday costs also found steep increases in resort costs in some countries.

The biggest rises were seen in Kenya (up 52% to £69.70) and Portugal (up 39% to £45.58), making these countries less attractive to tourists. Indeed, Portugal has fallen from top spot in 2011 to seventh place this year, which won't help its sluggish economy.

At the other end of the scale, here are the 10 most expensive places to visit, according to the Post Office:

As you can see, visiting these 10 countries means paying between £92 and £116 for the eight items listed above. What's more, most of these are far-away, exotic locations, which means paying sky-high air fares, especially if you don't travel in economy class.

It's worth noting that Turkey - formerly one of Europe’s cheapest destinations - has plunged to 17th place in this latest survey. Although the pound has strengthened more than a fifth against the Turkish lira, a 21% rise in local costs has more than wiped out this gain.

Indeed, with Spain and Portugal now much cheaper than Turkey and Greece for British travellers, the Post Office predicts a price war between the eastern and western Med in 2012.

That’s good news if your cash is being squeezed at home. But you should still look for holidays offering genuinely good value by carefully checking the cost of flights, accommodation, drinks and meals out before you book.

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