The Bank of England could be pulled in very different directions if British voters take the historic step of leaving the European Union in Thursday’s referendum.
The Bank, along with most private economists, has warned that a Brexit vote would deliver a shock to Britain’s economy.
The BoE could attempt to soften the hit by cutting interest rates from their current record low of 0.5%.But at the same time, a vote to leave the EU could provoke an inflationary fall in the value of sterling, potentially putting pressure on the BoE to raise borrowing costs.
The Bank may also have to take steps to steer Britain’s huge financial services industry through any upheaval in markets.
Britain’s economy slowed in early 2016 and BoE governor Mark Carney has said a Brexit could cause a recession, angering supporters of the “Leave” campaign who accused him of bias.
The BoE has said that, on balance, a British exit would reduce the chance of an interest rate hike but it also says it is unclear whether a rate cut would be the right thing to help the economy, due to the inflation risk from a weaker currency.
The BoE could expand its £375bn bond-buying stimulus programme it used in response to the financial crisis.
Among the banks that have predicted what the BoE’s response to a Brexit vote might be, analysts at Nomura said it would probably cut interest rates by 50 basis points to zero if the economy slowed and might even take them into negative territory.
Carney has sounded wary about resorting to negative rates.
The BoE has said it could buy corporate bonds if needed to help the economy, having previously focused almost all its quantitative easing programme on British government bonds.
Financial markets are pricing in a nearly 30% chance of a 25 basis-point cut by year-end down from 50% last week as expectations of a Brexit decreased, according to Nick Stamenkovic, strategist at RIA Capital Markets. An alternative scenario is that the shock of a Brexit vote weakens the value of sterling so much that the BoE sees the risk of higher import prices pushing up inflation sharply, raising pressure for a rate hike.
Sterling is expected to fall 9% versus the dollar in the immediate aftermath of a British vote to leave the EU, according to a Reuters poll in early June, with one forecaster betting on a fall of as much as 25%. Sterling has fallen 8% against a basket of currencies over the past seven months as opinion polls have shown a tight race. Polling at the weekend suggested the “In” camp had recovered momentum.
BoE policymakers said last week it was “increasingly likely” that sterling would fall further, perhaps sharply, after a Brexit.
Sterling lost about 25% of its value in just over a year at the start of the 2007-2009 financial crisis, but the Bank decided to proceed with rate cuts despite the inflationary impact of the weaker currency.
Former BoE policymaker Adam Posen said last month he expected the size of the slide in sterling would prevent the BoE cutting rates, and possibly force it to tighten policy.
The BoE said in March it would offer extra funds to banks in the weeks around the June 23 referendum as part of its plans to keep financial markets running smoothly.
The first of its planned extra long-term repo operations was held on June 14 and met only modest demand from British banks. 
The BoE has a further repo scheduled for June 21, two days before the vote, and a further one on the Tuesday after the referendum.
The BoE has said it might activate its swap lines with other central banks to ensure financial firms do not run short of foreign currency.
As well as interest rates, the BoE has other tools it uses to fine-tune Britain’s economy, called macroprudential measures, which are designed to control the flow of specific types of credit offered by banks and other lenders.
The BoE has said it is close to raising the counter-cyclical buffer (CCB) for banks, an extra level of protection in the form of higher capital requirements against future loan losses, to reflect progress in Britain’s recovery from the financial crisis towards more normal levels of borrowing.
The CCB currently sits at zero and could be raised if the BoE thinks banks need to be more insulated from a Brexit shock.
Conversely, it could keep the CCB at zero to minimise any interruption in lending after a Brexit.