Seven members of the Bank's Monetary Policy Committee (MPC) voted to keep rates steady at five per cent earlier this month, with Tim Besley opting for a 0.25 per cent rise and David Blanchflower a cut.

It was exactly the same voting pattern as July.

The minutes showed the MPC judged a rate hold was the best policy to ensure inflation came back to its two per cent target over the next two years, despite the fact that the economic outlook had worsened. Inflation hit 4.4 per cent last month, with members braced for worse to come as a result of rising energy prices.

The impact of the slowing economy was shown by research from business lobby group the CBI, which said manufacturers were becoming more downbeat about forthcoming levels of activity.

Sentiment from today's minutes was perceived by economists to be more "dovish" - or less hardline - than last month, with members agreeing that a case could be made for a rate hike, cut and no change.

Most economists believe rates will be cut later in the year and could go as low as 3.5 per cent as inflation becomes less of a threat.

Jonathan Loynes, of Capital Economics, said the MPC minutes confirmed that the interest rate debate remained "finely balanced for now".

He added: "There is little here to suggest that other members are about to join Blanchflower in voting for a cut in the very near future.

"Nonetheless, with inflation close to a peak and the economy heading towards recession, we still think rates could be falling by the year end and will eventually drop much further than the markets expect."

Today's minutes revealed that a rate increase could send a "strong signal" that the Bank would not allow sky high inflation to continue. But the move was ruled out as it risked making the economic downturn "unnecessarily deep".

And although members said a cut would help ease an economic slowdown, it could indicate the MPC was more worried about sustaining economic growth than controlling inflation.

Bank of England governor Mervyn King has already warned that the UK economy faced at least one quarter of negative growth.

There was more evidence of the worsening economy today with a survey showing manufacturers currently rate prospects for business activity as the worst for nearly seven years.

The CBI industrial trends survey for August showed a balance of 13 per cent of firms expecting their volumes to fall over the next quarter. This is the worst reading since December 2001, and a deterioration from the seven per cent recorded in July.

In another sign of tough times for the sector, the survey reported demand for goods also weakened this month, with a balance of 13 per cent judging their order book levels to be "below normal". It was last worse in October 2006.

The level of manufacturers expecting price rises in the coming three months were also similar to the 18-year high recorded in July. A balance of 31 per cent of firms are bracing themselves for price hikes, down from the 34 per cent seen last month.

Ian McCafferty, the CBI's chief economic adviser, said: "Manufacturers are becoming more downbeat about forthcoming levels of activity but are still having to raise their prices due to the severity of recent cost increases.

"Domestic conditions remain sluggish and the recent slowdown in the euro zone economies is starting to make conditions tougher for UK manufacturing exporters, although the weaker pound will offer some relief."