This season's after Christmas sales here started on the Saturday before Christmas.

From London's Oxford and Regent streets to the High streets of cities and towns across the country, holiday business was bad. Merchants believe they already have been hit by the 1980 recession bearing down on Britain.

This country's ubiguitous economic forecasters are equally gloomy. Their prognosis is a sharp recession complicated by other symptoms of a chronically ill economy and the side effects of Prime Minister Margaret Thatcher's drastically conservative presciption for curing it.

While Britain's national output will fall by as much as 2 percent in 1980, according to the economic forecasters (including those in the government itself), unemployment is likely to rise from 1.3 million to 1.7 million or more.

Meanwhile, the inflation rate -- now 17 percent -- is expected to top 20 percent before peaking later in the year. The minimum lending rate is already at a record 17 percent, and the interest on many mortgage loans has soared to 19 percent. Pay raises in this winter's wage round are averaging around the inflation rate.

This means that many British families' incomes will fail to keep up with steeply rising rent and mortgage payments plus prices for everything else from food and clothing to gasoline and public transportation. It also will be frightfully expensive to try to live above one's means with credit cards and personal loans.

If this appears to be only a somewhat exaggerated version of the dark forecasts for the national economy and family finance in the United States this year, Thatcher's doctrinaire monetarist policies for copying with British stagflation also are similar but much more severe and deeply rooted than the tight money policies now being tried by the Carter administration.

She is using the record high interest rates and repeated cuts in governement spending to try to squeeze down inflation and reduce the government's role in the economy. She believes this is the only route in long-term economic relief, even though it is almost certain in the short run to deepen the coming recession, increase unemployment and bankrupt shaky businesses.

Thatcher recently revealed that she has ordered another round of government spending cuts this year -- her fourth since becoming prime minister last May -- to save more than $4 billion. It also will mean further cuts in welfare state payments and services, however, because Thatcher is sharply increasing spending for defense at the same time.

She also intends to pursue her survival-of-fittest policies for Britain's ailing nationlized industries, the creation of which she calls "the greatest sin" of the Labor governments who ruled Britain for 12 of the past 16 years, even though that will mean eliminating tens of thousand more jobs and closing many more factories in the steel, automobile and shipbuilding industries alone.

And she wants to keep cutting taxes for higher-paid families and profitable businesses, even though that will widen the gap between rich and poor. She recently acknowledged that this necessarily "means more inequality," but argued that by making it possible to create more wealth it eventually "means you drag up the poor people because there are more resources to do so."

Politically, she is playing with fire, even with her conservative party's 43-seat majority in the House of Commons. Her cabinet is half full of more traditionally middle-of-the road Conservatives ready to replace her as party leader and prime minister is her policies become too unpopular.

"I have to admire her boldness and political skill in managing to do all she has so far," said one senior diplomatic observer here. "But I really doubt that her economics are going to work."

Many British businessmen realize "we must now deliver," in the words of a top executive of one large firm. "She has given us the policies we said we wanted, so it is now up to us to make them work. We've got to do better."

Energy Secretary David Howell, who is one of the staunchest of the small circle of unswerving supporters, recently said he thought Thatcher was gaining public understanding for her radical approach. "The attitude of the population is changing more than we in London may realize," he insisted. "The government needs to hold on. We are determined not to make a U-turn."

Howell is custodian of the most notably strong performer in the British economy -- North Sea oil. By mid-1980, Britain for the first time will be producing more oil than it consumes. But it will continue to export profitably about half of the high-grade North Sea oil at premium prices while filling the domestic gap with cheaper, lower-grade oil.

Even North Sea oil has given a mixed blessing, however. While earning Britain badly needed foreign exchange and revenue in taxes and royalties, it has made the pound sterling a "petrol currency," inflating it in value disproportionate to the performance of the rest of the British economy. That makes already uncompetitive British products even more expensive for other countries to buy and even less attractive to budget-conscious Britons who buy imported goods instead.

As their standard of living continues to fall, will the British patiently wait for Thatcher's economic policies to produce eventual improvement that she concedes is at least two years away? When asked that recently, Thatcher stared intently at the questioner in her most disarmingly frank way and answered with a question of her own: "What is the alternative?