The United Kingdom will announce its determination to launch the first Islamic bonds by a western government. This is the clearest sign that long-running doubts over costs and pricing have finally been put to rest.

The economic secretary to the treasury, Kitty Ussher will say there is a “powerful momentum” behind the plans, which should solidify London’s position as the leading western centre for Islamic finance.

In April 2007, the government unveiled hopes to issue Sharia-compliant bond, or sukuk. Since then, the initiative has been hotly debated, with some civil servants raising concern about the cost of issuing sukuk, which due to their complex structure to avoid paying interest in line with strict religious laws, are far higher than conventional bonds.

Convinced that the political and financial benefits far outweigh worries about cost, the government believes the bonds can be priced competitively to attract buyers, which is of further concern to civil servants.

Ms Ussher commented on the announcement, “This is an important market for Britain, which we are committed to growing.

“Although we don’t see this as a competition between financial centres, London is now established as the most important western centre for Islamic finance. New York has missed the boat.

“We are determined to issue Islamic bonds. It will bring money to London and send out a strong positive signal to the Muslim community.”

Bankers say that a sovereign UK Islamic bond would be a milestone for the $80bn sukuk market as it would boost liquidity and encourage other western governments to follow suit.

Although the Bulk of sukuk issues have come from the Middle East and Malaysia – around 90 percent of the market, a Texas-based oil group, a German state and the World Bank are also involved.

Bankers predict the bond will be about £500m. A bond of this size would help Islamic banks by giving them the ability to buy safe triple A rated paper, which will improve their balance sheets and provide them with collateral for other lending operations.