British Ambassador to the United States Peter Jay said yesterday that his government "welcomes, admires, and supports" the broad range of President Carter's international policies.

Stating that he wanted "to set the record straight" in view of some reporting from Washington about troubled relations between the U.S. and European nations, Jay emphatically endorsed Carter's human rights initiative as an issue of "extreme importance."

Jay told the American Newspapers Publishers Association that Carter's effort to increase the efficiency of the North American Treaty Organization must be supported, if the alliance's ability "to face challenge" is to prevail. Otherwise, Jay said, people would conclude there is "no way for a free society to fight a protalitarian state."

The ambassador also supported Carter programs aimed at controlling arms proliferation as well as policies in the Middle East and South Africa. Although Jay later declined to state the source of Washington reporting to which he was responding his speech came after publication of an Evans and Novak column stating that Carter strategies on arms had raised alarm in Europe.

Jay also detailed yesterday his own country's economic recovery since the "severe trauma" of 1975, when inflation soared at a rate of more than 30 percent.

A "more realistic frame of mind" has developed and Britain's currency and reserves have become stronger because the nation "shed some illusions" that helped cause the problem.

Specific "illusions" mentioned by Jay were these: That government can create wealth by printing money, that services can be achieved by government planning to spend what industry had not yet produced and that workers could achieve a higher standard of living regardless of their work.