The economy is in recession, inflation is forecast to drop as low as 0% — yet holiday prices for 2009 are expected to skyrocket, tour operators have warned.

Increasingly grim market conditions had led many commentators to predict more cut-price deals for next summer. However, industry insiders believe those hoping prices will be slashed to stir up demand are in for a disappointment, because the number of holidays on offer has itself been slashed, by nearly half over two years.

Mergers between big firms, cuts in capacity and the failure of several tour operators, including the holiday giant XL, mean there will be about 40% fewer holidays on sale next year than there were in summer 2007.

The unprecedented fall would naturally force prices up — but the effect is expected to be accentuated by sterling’s continued depreciation.

The pound hit an all-time low against the euro last week, and this is exactly the time many operators are negotiating prices with hotels on the Continent for 2009 — meaning that the poor exchange rate will be “locked in” for next summer.

So how much extra will we be paying? Estimates vary: Thomas Cook chief executive Manny Fontenla-Novoa predicts a rise of about 7%, while Graham Donoghue, of the price comparison website Travelsupermarket, believes we could see increases of 15% to 20%.

“The pressure will be on families and those with mortgages to pay,” says John McEwan, of the nationwide travel agency Advantage. “We’re already seeing bookings for 12 days instead of 14, for example, or where families have traded down a star in their choice of hotel.”

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