BBC News suggested yesterday Cameron with first try to form a minority government with the Lib Dems, the DUP and UKIP but it won't work. Even if the Lib Dems agree it's likely to fail a confidence vote.
However, they went on to say a Labour + Lib Dem minority government could survive a confidence vote as parties like the SNP, Plaid Cymru, Greens and Respect are less likely to vote against it.
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I suspect the forecast for Tatton may be wrong as well:
http://electoralcalculus.co.uk/cgi-bin/seatdetails.pl?seat=Tatton
Osborne losing votes but still winning - very likely.
Labour gaining votes - likely.
The Lib Dems (who came second last time) coming fourth - possible.
However, the forecast seems to suggest either a significant number of people who voted Lib Dem or Independent last time will vote UKIP this time or a significant number of people who didn't vote last time will vote UKIP. I think UKIP coming third is possible but I think if they do then Osborne will lose more votes than they're predicting.