A report for clients of SBC Warburg concluded that Labour would win the election with a majority of between 19 and 30 seats, just enough to prevent the City from becoming nervous that the new government might not stay the course.
Stephen Yorke, the bank's head of political research, said that at the last election many of the seats Labour needs to win went against the national trend. The Tories could unexpectedly hang on to some of their marginals, he concluded.
Mr Yorke's report told the bank's clients not to over-invest in sterling in the next few weeks in case a hung parliament makes the markets jittery.
He said demographic trends can buck the polls, as they did in London at the last election, when votes swung away from Labour towards the Conservatives in some key seats.
Local radio and television coupled with increasingly sophisticated campaign techniques had made people more aware of their MPs and more likely to support them, he said.
Mr Yorke also said the long campaign and a general trend towards lower turn-outs might act against Labour, which tended to do best when turn- outs are high. He added that voters could, and did, change their minds at the last moment.
"As the dreaded voting moment arrives, fear becomes a more powerful emotion than hope. If one examines the post-1979 political landscape, the UK is a two-election culture: general elections and everything else," his report said.
The report compared this election with that of 1964, when a dynamic young Labour leader, Harold Wilson, campaigned on the theme of "Time for a change" after 13 years of Tory rule. The Tory party was mired in scandal, having been hit hard by the Profumo affair, and its leader, Alec Douglas-Home, was seen as weak and ineffective.
During the campaign, he said, the Conservatives successfully frightened the electorate about the risks of change and Wilson won by only five votes.Reuse content