Key's re-election chances improve, inflation surprise won't sway RBNZ - iPredict

A week is a long time in politics.

Since last Wednesday, the chances of a National prime minister after this year’s general election has improved to 58.3%, from 53.3%, according to Victoria University’s political market website iPredict.

However, National’s success is still expected to depend on smaller parties, which gels with comments made by Prime Minister John Key at his Cabinet reshuffle announcement this week.

Mr Key, who is expected to seek a third term, re-installed United Future’s Peter Dunne as a minister, reached out to Colin Craig’s Conservative Party and even extended a short and withered olive branch to New Zealand First.

According to iPredict, the likelihood of a Labour prime minister has dropped to 41.7% probability, from 45.1%, as leader David Cunliffe today announced Labour is dropping two flagship tax initiatives to free up $1.5 billion for other policy promises.

With National and the Labour/Green bloc in a dead heat on iPredict's market, the smaller parties are crucial to the 61-seat support needed to form a government in the 120-seat parliament.

According to iPredict's second election snapshot of the year, taken at 10.37am today, National is expected to win 42.96% of the party vote, Labour 34.07% and the Green Party 9.29%, with no other party expected to hit the 5% threshold.

Of the smaller parties, Winston Peters’ NZ First is not expected back in Parliament, while Act is only a 50% chance of winning the pivotal Epsom seat in Auckland vacated by leader John Banks.

John Boscawen is tipped to lead Act (55% probability), while formr John Banks staffer David Seymour, at 45%, is most likely to run for Act in Epsom.

Mana and UnitedFuture have an 80.2% probability of winning at least one seat, followed by the Conservatives (64.6%) and the Maori Party (61.5%).

Parliamentary map
Assuming Act wins one electorate seat, Parliament’s make-up could be: National 54 MPs, Labour 42, Green 12, Conservatives 6, Act 2, Maori Party 2, UnitedFuture 1, Mana 1.

If Act does not win an electorate seat, the probable scenario is: National 55, Labour 43, Green 12, Conservatives 6, Maori Party 2, and Mana and UnitedFuture 1 each.

In economic predictions, despite an inflation surprise this week, there is a 67.6% probability of no change on January 30, iPredict's market says.

The chance of a 25 basis point rise on March 13 is now 70.4%.

Meanwhile, the probability of the Reserve Bank hiking interest rates this year has reached a near certainty – at 98.9%.

Growth for the calendar year will hit 4.8%, according to iPredict's snapshot, while unemployment is expected to fall to 5.83% in the December quarter.

There is now an 85.8% probability of a fiscal surplus in 2014/15, of about 0.56% of GDP.