The benchmark FTSE 100 index gained 0.6%, with energy stocks gaining 7%. Oil heavyweights BP and Royal Dutch Shell were the biggest boosts to the blue-chip index.

Britain began its third COVID-19 lockdown on Tuesday with citizens under orders to stay at home and the government calling for one last major national effort to stem the spread of the virus before mass vaccinations turn the tide.

"Based on the market behaviour yesterday and today, I think there is a willingness to look through the economic implications of this current lockdown because it could be the last one," said Connor Campbell, a financial analyst at Spreadex.

Britain on Tuesday announced a new 4.6 billion pound ($6.2 billion) support package, under which retail, hospitality and leisure companies will be able to claim new one-off grants worth up to 9,000 pounds.

The blue-chip index currently trades at levels seen in early March last year when the coronavirus crisis had just begun to roil markets globally, but has gained nearly 33% from its record 2020 lows as the economy showed signs of improvement led by huge government stimulus packages.

The mid-cap index was up 0.9%.

December was the busiest month ever for British supermarkets as tightening COVID-19 curbs and the closure of restaurants, bars and cafés meant shoppers spent 11.7 billion pounds ($15.9 billion) on groceries, industry data showed.

Morrisons, Britain's fourth-largest supermarket group, reversed early gains to fall 0.7% even after reporting a rise in underlying sales in its latest trading period encompassing Christmas.

British fashion retailer Next jumped 8% after beating its Christmas sales forecast.

(Reporting by Shashank Nayar and Shivani Kumaresan in Bengaluru; editing by Uttaresh.V, Shailesh Kuber and Emelia Sithole-Matarise)

By Shashank Nayar and Shivani Kumaresan