Analysts said prices were likely to be volatile this session due to continuing worries about the euro zone sovereign debt crisis after Moody's downgraded Ireland's credit rating to junk status.

UK jobless data at 0830 GMT are unlikely to garner much attention, with strategists' focus fixed on the inaugural Fiscal Sustainability Report by Britain's Office for Budget Responsibility fiscal watchdog.

At 0733 GMT, the September gilt future was 33 ticks down at 122.65, underperforming the equivalent Bund by around 10 ticks.

"There is anxierty about euro zone, on the other hand the equity market is probably less focused on anxiety and more focused on the emerging market world and feeling upbeat after the Chinese data and that seems at the moment to be trumping things," said Marc Ostwald, strategist at Monument Securities.

The OBR's report will give long term projections for public spending and tax revenues, describe the public sector balance sheet, and set out summary indicators of the long-term sustainability of public finances.

"There will almost certainly be some recognition that the trend growth rate for the UK economy is lower," Ostwald said.

"That must mean that the trend growth rate for revenues is lower, and therefore it's not just about cutting expenditure."

In the cash market, the yield on ten-year gilts was almost 2 basis points higher at 3.111 percent, widening the spread against Bunds by 1 basis point to nearly 41 basis points.

Copyright Reuters, 2011