The labor government today undid the deflation imposed by its creditors last Christmas, administering a $2.6 million tax-cut stimulus to Britain's sluggish economy.

Denis Healey, the chancellor of the exchequer, copied his own unique carrot-and-stick device and made much of the tax slash conditional. If the trade unions agree to a third year of pay restraint, the country will get the rest, a slice of about $1.6 million.

The chances are better than even that a deal of sorts will be made, especially because the government is advertising its willingness to accept a much looser curb this year. But some unions already have defied this anti-inflation weapon, and labor leftists were grumbling tonight that Healey's tax bait isn't big enough.

The central point of today's budget proposal, Healey's tenth in three years, is a demonstration of the belief that, as the chancellor put it, "We are now through the worst."

Thanks to wicked inflation, high unemployment, a plunging pound and stagnant output, living standards have been falling here since the end of 1974.

But today Healey could forecast with some confidence that living standards will fall no further and probably pick up next year. He even could hold out hope that the current inflation rate of 17 per cent would fall below 10 per cent by the end of next year.

The big reason for the change in prospects has little to do with government policy and almost everything to do with an accident of geology. North Sea oil is gushing in here. By the end of this year, Britain no longer should be running a balance-of-payments deficit but should be showing a surplus.

At home, this gives the government greater room for maneuvering. It now has the freedom to stimulate an economy heavy with under-used plant and unemployed men. This is the point of today's tax cuts, providing consumers with money to swell the demand for goods and services.

Until it runs out, the oil also frees Britain from following the dictates of foreign leaders who had been financing the balance-of-payments deficits. Just last December, the labor government was obliged to do what it was told in order to raise $6.9 million from the leading industrial nations.

Without those loans, the pound would have sunk from sight. Now, because of oil, the Treasury is fighting to keep the pound from appreciating.

Many in the government here thought last winter that the under-employed economy should be expanded. But the conservative lenders - notably former U.S. Treasury Secretary William Simon and Chancellor Helmut Schmidt of Germany - insisted on tightening the screws. So the labor government slashed, at least on paper, $1.7 million from its spending. Today's tax cuts more than wipe this out.

Healey and Prime Minister James Callaghan also are hoping for some immediate political dividends from the reductions. The government is struggling to hold the Birmingham parliamentary seat vacated by Roy Jenkins, now president of the Common Market Commission. The polls show Labor's man running a step behind the Conservative, and today's handouts could save the seat in Thursday's vote.

By U.S. standards, income tax reductions of $2.6 million not seem much. But the British economy is one-eighth the size of the U.S., so this is comparable to a reduction of more than $20 billion in a year, or considerably more than the amount of President Carter's stimulus plan.

The tax relief, a combination of increased exemptions, broader tax brackets and the conditional cut in the bottom-bracket rate, are designed to help those at the bottom and top of the income scale.

In the middle, a married father of two making the average wage of $137 a week will enjoy a tax cut of $194 a year. At the top of the relatively modest British ladder, a married father of two earning $38,700 will pick up a $1,500 tax break.

Thanks to the increased exempions, about 850,000 persons will be taken off the tax rolls entirely.

In all, Healey's cuts come to $3.9 million, but he recaptures $1.3 million in heavier excise duties. A Cromwellian streak runs through the chancellor, so he is imposing new levies on cigarettes, gas and cars as well as trucks. The price of a pack of cigarettes will go up by at least 7 cents to 93 cents and the average price of a gallon of gas will go up by 10 cents to $1.43.

The chancellor said he was deliberately shifting some of the tax burden from direct taxes on income to indirect taxes on consumption. Because the poor consume relatively more of their income than the rich, Healey is following a classic conservative prescription. But then this is a cautious Labor regime.