The Bank of England may have forgotten what it means to actually move the interest rates, but in terms of verbal intervention it has not been short of opportunities since the financial crisis of 2007-2009.
However, it will have the most important opportunity for verbal intervention tomorrow, when its Monetary Policy Committee meets at mid-day to discuss monetary policy, and at 9 p.m. London time, when Bank of England Governor Mark Carney delivers his speech at the annual Mansion House Bankers' Dinner.
Carney has warned before that Britain is relying on "the kindness of strangers" to finance its bulging current account deficit; the recent slump in the pound vs. the major currencies has confirmed his warnings. However, this is a tricky period for the governor, because U.K. electoral rules say that he cannot say anything that would support either campaign so close to the referendum.
It is clear, however, that he needs to say something in order to calm markets. A survey of fund managers carried out by Bank of America Merrill Lynch between June 3 and June 9 showed that they raised the percentage of cash in their portfolios to levels not seen since November 2001.
Globally, 174 participants with $543 billion in assets under management responded to the survey, and they ranked the risk of Brexit, as the U.K. leaving the European Union has become known, as the highest risk for the global economy, followed by a failure of the quantitative easing policies and a devaluation of the Chinese currency.
But two thirds of those surveyed said it was "unlikely" or "highly unlikely" that the U.K. will actually leave the EU, which indicates that a vote in favor of Brexit is not yet priced into the markets. This means that more volatility will certainly follow on June 24 if the result confirms the most recent polls showing the "leave" campaign ahead.
This morning, Chancellor George Osborne tried to calm the markets by presenting a budget that, he said, should be adopted by any government in the event of a vote to leave the EU in the June 23 referendum.
This emergency budget would ensure that the country could plug a budget gap that would open wide due to the disruption caused by leaving. It would include tax raises and spending cuts that would ensure stability of public finances.
He was immediately accused by members of his own Conservative party of scaremongering, rather than offering a solution to calm the markets.
The Bank of England's Carney must be careful not to provoke the same kind of accusation, but at the same time he must give markets some sort of an idea about what the bank is prepared to do in case a vote in favor of Brexit becomes reality.
A Reuters report on Tuesday quoting European Central Bank (ECB) sources said the bank would publicly state it is prepared to backstop financial markets, together with the Bank of England, if the U.K. votes to leave the EU.
The ECB will open swap lines with the Bank of England, allowing the exchange of euros and sterling and, in fact, providing unlimited liquidity to the markets, the sources told the news agency. This is a reminder of the dollar swap lines the Fed opened with major central banks around the world at the height of the financial crisis and speaks volumes about how worried central banks are about the disruption that a pro-Brexit vote may cause.
This would certainly help contain global market jitters, but for the U.K. economy the Bank of England's possibilities are relatively limited. If there is a run on sterling, the central bank might have to hike interest rates to prevent a full-blown currency crisis, causing hyperinflation. But if it does this, it risks precipitating a crash in the over-heated housing market.
There could be no worse time for an interest rate hike forced by markets. The prices of prime central London property are already falling and this morning house builder Berkeley Group said reservations of new properties plunged by 20% in the first five months of this year.
The U.K.'s recovery has been relying heavily on the continuing rise in house prices, which have contributed to increasing consumer confidence and rising debt. If Britain votes to leave the EU, the Bank of England may find itself having to choose between a crash in sterling or a collapse in house prices. Either could be disastrous for the U.K. economy.