At 0845 GMT, the December gilt future was 12 ticks higher at 120.59, while its equivalent German Bund contract , was 1 tick higher.

"The gilt market reacted positively and is likely to benefit going forward from less ratings pressure and lower issuance in the near-term than otherwise would have been the case," said Citi strategists.

BOE Governor Mervyn King said the move equated to a modest loosening of monetary policy, potentially giving a boost to the stagnant economy, and economists said it may help finance minister George Osborne meet his debt reduction targets.

But the government's budget watchdog warned the step would bring longer-term costs once interest rates start to rise, and some analysts said it raised concerns about central bank independence and the possible future monetisation of debt.

Investors are looking towards the Bank of England's Inflation Report later in the week for more clues on whether the Bank may still add more quantitative easing bond-buying in the months to come.

"The Bank of England's Q4 Inflation Report will be closely watched, with short-term CPI forecasts set to be revised higher, and forecasts and comments on the short-term GDP outlook likely to weigh heavily in the balance of near-term additional QE expectations," said Monument Securities strategist Marc Ostwald.

A slew of economic data over the course of the week will also help investors assess the state of the British economy, which exited recession during the third-quarter.

Ten-year gilt yields fell 2 basis point to 1.71 percent, with their spread versus Bund yields 2 basis points tighter on the day at 37 basis points.