UK's Burnham says it is crucial to have stability in public finances

LONDON, Sept 26 (Reuters) - British Prime Minister Andy Burnham said on Saturday he knew he had to show investors he had faced "up to the reality" of the public finances in order to stabilise markets, before he can make bigger changes to the economy. 

Government borrowing costs across advanced economies have hit repeated multi-decade highs in recent weeks due to fears of persistent inflation caused by the Iran war and rising government borrowing.

But Britain's borrowing costs have also been driven higher by market concerns that its new government will struggle to rein in spending, with all eyes on its budget on October 28.

Burnham added, however, that the will among his Labour lawmakers was "not there for crude cuts" of the welfare budget. 

"I do think it is crucial to have stability and to show that there's a willingness to face up to the reality of some of these difficult things," Burnham told the Guardian newspaper, ahead of the start of his governing Labour Party's annual conference.

"But actually from that stability, the permission can come to make bigger change that, in the end, could put the country in a stronger position in relation to the public finances.

"You have to have stability, but you have to do what you can within that. You can't pursue a major programme of change, which is what I believe the country needs, in a chaotic situation."

Rising borrowing costs and higher inflation since the budget in March mean some economists think the relatively narrow £24 billion of headroom to meet the budget goals has roughly halved, limiting the government's room for manoeuvre.

Investors have also not forgotten the turmoil that was sparked by the mini-budget of former Prime Minister Liz Truss, which set out £45 billion of unfunded tax cuts. 

(Reporting by Kate Holton; additional reporting by David Milliken; editing by Gareth Jones)