We investigate the wavelength-dependent intensity and reverberation properties of the UV-optical diffuse continuum emission expected from broad emission line gas. The locally optimally emitting clouds picture is adopted, with the cloud distribution functions in gas density and distance from the ionizing source determined by a fit to the mean UV emission line spectrum from the 1993 HST campaign of NGC5548 in our previous paper. The model Balmer continuum's strength and variability

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... are in agreement with those derived from the observations of NGC5548. A key prediction is a wavelength dependent lag across the UV-optical spectrum which can broadly mimic the signature from X-ray reprocessing in an accretion disk, calling into question the discovery claims of the latter in NGC7469. The influence of the diffuse continuum on the optical continuum may result in a small yet significant underestimation of the characteristic sizes of the regions emitting the optical emission lines. Its contribution can also alter the inferred spectral energy distribution of the UV-optical continuum, even well outside the spectral region near the well-known Balmer jump. The reverberation of the diffuse continuum emitted by the BLR may account for perhaps one-third of the observed effect that the 1350-5100 Angstrom continuum becomes bluer as it becomes brighter (even after accounting for non-variable optical starlight). And as in other models of the broad emission line gas, a significant yet unobserved Lyman jump is predicted. (abridged)