Punters using Betfair and IG Index are betting that Labour's election majority will be slashed to about 60 seats, a much smaller margin of victory than most polls suggest.
With Tony Blair set to announce a May election early next week, bookmakers, spread-betting companies and betting exchanges are preparing for a flurry of election-related bets.
Betfair, which allows punters to bet against each other over the internet, has already matched more than £1m of bets on the election result, with customers predicting a Labour victory. Customers of IG Index, the spread betting company, are also expecting a Labour victory and are selling the size of the majority at 58 seats.
“This is what our clients are saying,” said Karim Fatih, politics specialist at IG Index. “Market forces have driven prices down from an opening price of a 66-72 seat majority to a Labour majority of 58-64.”
One IG Index customer has bet £1,000 on a Labour majority of 66 seats. Should Labour return to power with an unchanged majority of 161, the punter will have to pay IG Index £95,000.
Most pollsters are reluctant to forecast how the share of the vote would translate into numbers of seats because of the considerable margin of error. But a prediction based on an average of polls taken in the past month by Electoral Calculus, the online election predictor, gives Labour a four-point poll lead, which would produce a majority of 106.
A Labour lead of seven points over the Tories, as suggested in the latest ICM poll for The Guardian, could translate into a majority of about 140 seats.
The latest Mori poll for the Financial Times puts Labour and the Tories level on 37 per cent and the Liberal Democrats on 20 per cent. Mori suggests this could slash Mr Blair's majority to just over 50 seats.