Britain is gearing up to launch the first Islamic bond by a western government in spite of the collapse of the market in the past month.

According to a report the Treasury has said there is a “powerful momentum” behind the plans, which will cement London’s position as the leading western centre for Islamic finance.

Islamic bonds or sukuk have been hit by the sharp fall in the price of oil and deepening gloom over the outlook for the world economy.

Hedge funds, which pumped money into Islamic products in the Middle East in the first six months of the year because of expectations over revaluations of some of the Gulf currencies against the dollar, have also exited the market.

There have been only three Islamic bond deals since the start of October, raising a meagre $214m (£137m), a quarter of the amount issued in September and a fraction of the $13.2bn raised in total this year so far, according to Dealogic, the data provider.

The government unveiled plans to issue a Sharia-compliant bond to much fanfare in April 2007.


Mohammed Dawood, director of capital markets at HSBC Amanah, the Islamic arm of HSBC, said: “We live in a global world and the consequent implications of a reduction of liquidity have had its impact on the sukuk market and the Middle East region.”