The UK budget hotel market broke through the £1bn barrier for the first time in 2006, a new report has found.

According to market analysts Mintel, the budget hotel market surged 38 per cent between 2002 and 2006.

This growth is three times that of the overall UK hotel market (worth £11.2bn), which increased by just 12 per cent over the same four-year period.

Today, the budget hotel market is worth a whopping £1.1bn, with no less than 85,000 budget rooms to choose from in the UK alone.

Mintel said it expects the sector to grow by a further 38 per cent over the next five years, with the market set to hit the £1.5bn mark by 2012.

The run up to the 2012 London Olympic Games is set to be a key factor driving this growth, the firm added.

Richard Cope, Mintel senior travel analyst, said: "The Brits' desire for taking several short breaks a year, independent booking and paying for guaranteed basics has seen budget hotels surge in popularity.

"Boutique and lifestyle budget hotels such as The Big Sleep, the Hoxton Hotel and base2stay have raised the game by providing an affordable but luxurious alternative to their more traditional cousins.

"In the same vein, the new capsule hotels in prime locations by brands such as Yotel and nitenite offer high-spec, cutting edge design but in smaller living spaces. Both have also helped boost the budget hotel market."