At the end of a difficult period for Tony Blair it’s tempting to bet on the Tories to win most seats at the General Election. The prices look good value and Labour is expected to take a real drubbing in the “Super Thursday” local, London and Euro Elections on June 10.

The mood is being reinforced by the way Michael Howard has been able to pursue the Government on Iraq. As Robin Cook writes in the Independent today “Howard may not be able to airbrush out of the record Tory support for invading Iraq in the first place, but he is determined to make as much capital as he can out of the monumental blunders of the subsequent occupation.”

The main betting activity in recent days has been on the Conservatives to win most seats at the General Election. On the betting exchanges, the most sensitive market, the price has now dropped to 3.6 – a move that was predicted in our Monday Call on April 19 when the price was at 4.3. Such a drop in such a short period is significant and reflects a real change of sentiment on the markets. But there are two dangers.

Firstly Labour could recover – perhaps prompted by a new leader. The rumour since John Prescott’s famous “Admiralty Arch” dinner last November is that Blair will stand down in July after 10 years as Labour leader – a scenario that punters have been betting on. This would allow a leadership process finishing off with Gordon Brown taking over at the Labour conference in the autumn. The recent YouGov poll had Labour and the Tories level pegging on 39% each if such a change happened.

Secondly the Westminster seat distribution makes it difficult for the Tories. Even to get equal with Labour on seats Howard needs to be 6-7% ahead. For a majority at the General Election the Conservatives need a lead of 10%.

Although the polls have been moving some way against Labour in the last few weeks we are nowhere near the area where the prospect of Labour not winning on seats becomes a possibility. Theoretically Labour can maintain an overall majority in the House of Commons on 32% of the vote.

But this calculation is based on the concept of the Uniform National Swing. The Conservatives might win more seats because of differential swings in different areas. There is also the affect of tactical voting which gave Labour many more seats than the general swing in both 1997 and 2001. What happens if this unwinds? We intend to look at in more detail in the next few days though its impact is not as great as some Tory supporters might hope.

As a strategy we still suggest waiting until after the June 10 local and Euro elections because we can see the Conservative price fall even further and the Labour one to rise. The key thing post-June 10 will be the opinion polls. Unless these start to show Conservative leads in excess of 6% then backing Labour will be a value bet.

There is a danger that people might over-react to the Euro and Local elections. Following William Hague’s successful Euro Campaign in 1999 in which the Conservatives came out on top the opinion polls hardly changed. These are the ICM Labour-Conservative leads from that period –

May 1999 – Lab lead 23%
June 1999 – Labour lead 17%
June 1999 – Euro Election – Tory lead 7.6%
July 1999 – Labour lead 17%
August 1999 – Labour lead 18%

UPDATE – WHITE HOUSE 2004. Six US polls this week have Kerry and Bush within one point of each other. The Iowa market has the two almost at the same level. The race has never been as close and it’s Kerry who is moving forward.

Picture – www.srimedia.com/artman/uploads/_1942016_howard150.jpeg