Are the markets over-stating the chances of a Tory overall majority?

It is a sobering fact that in only one of the seventeen general elections since the end of the Second World War has a party with a workable commons majority been replaced by another with a workable majority.

In 1951, 1979 and 1997 the outgoing governments had ceased to have effective commons majorities. In 1964 and February 1974 the incoming governments had either minuscule majorities or were in a minority and second general elections followed not too long afterwards. Only when Ted Heath’s Tories took over from Harold Wilson’s Labour in June 1970 was a party with a reasonable majority replaced by another.

It’s in this context that Cameron’s general election goal of becoming Prime Minister of a Conservative majority government needs to be judged. It’s a massive ask and requires a huge number of gains.

So what are we to make of the movements in Betfair’s general election outcome market reflected in the chart above? The graph, using betting prices expressed as an implied probability, tracks the changes in punter perceptions of the election over the past six months to the point where this week a Tory majority could replace a hung parliament as the punter’s favourite.

But how realistic is this? Yes there has been a good spate of opinion polls and the fact that Cameron’s party now seems to have broken the 40% polling barrier does suggest that a majority might be possible – but should it be the favourite?

On the commons seats spread-betting markets, where the serious gamblers play and where much greater sums are put at risk, the Conservative buy price is about 303-304 seats – somewhat short of the magical 325 figure that Dave needs to be sure that he’ll be driving up the Mall to see the Queen.

The current indicators suggest that Labour is in danger of losing power but no more. This might change but there is always the danger that it could go in the opposite direction.

Mike Smithson