A three-way split emerged at the top of the Bank of England today as it grappled with the bleakest economic outlook since the 1990s recession.

Seven of the nine members of the monetary policy committee, including Governor Mervyn King, voted to leave rates at 5% this month.

But arch-dove David Blanchflower opted for a cut while Tim Besley went for a rise - the first vote for an increase in rates since July last year.

The three-way split highlighted the Bank's dilemma as the economy faces the twin threat of runaway inflation and sharply slowing growth. It was only the second such division since the Bank was given independence in 1997.

Minutes from the July meeting today said the decision "was a difficult one" for the MPC. However, they also paved the way for a rise next month.

"A rate change this month would be a surprise at a time when credit and other financial markets remained fragile, and any change in rates would be better communicated alongside the Bank's August inflation report," the minutes said.

Inflation is well above the 2% target at 3.8% with many expecting it to peak above 5% this year. However, the economy grew at just 0.3% in the first quarter, leaving it on the verge of recession and leading Blanchflower to vote for an immediate cut.

The economic crisis was today underlined by a grim survey from the CBI that showed manufacturers have been rocked by sharply slowing demand at the same time as prices are rising.