The Bank of England (BoE) decided to hold it key interest rate at a record low of 0.5 percent on Thursday despite fears that the economy could slip into stagflation.

Caught between calls to rein in inflation and prop up the fragile economic recovery, BoE's Monetary Policy Committee decided to support the government's fiscal tightening efforts without bumping off the shoots of economic recovery.

The Committee also voted to maintain the stock of asset purchases financed by the issuance of central bank reserves at 200 billion pounds.

The minutes of last month's BoE policy meeting showed the hawkish line was getting stronger within the central bank with Martin Weale supporting Andrew Sentance's stance that rates should be hiked to 0.75 percent to stop inflation from spiraling.

However, what prevailed upon policymakers could have been the belief that inflation could slip back into comfortable levels by next year.

According to a consensus forecast of economists, inflation spiked to 4 percent in January. The BoE governor had maintained last month that inflation could retreat to target levels by early next year.