When British Chancellor of the Exchequer Sir Geoffrey Howe was here a few weeks ago for the IMF-World Bank meetings, he was asked how long he thought Prime Minister Margaret Thatcher would pursue a policy of austerity in the face of a deepening recession and rising unemployment.

Sir Geoffrey, in his debonair way, suggested that the Tory Government could and would hold onto its restrictive monetarist policy for quite a long time, despite bad times that are getting worse on almost every front, including the distressing inability of British industry to compete at home or abroad.

Perhaps the most devasting commentary on the sad state of the British economy is the fact that its auto industry has lost more than half of its domestic market to other Europeans and Japanese makes, because the quality of British cars is notoriously poor. No such blow has been suffered by any other country pretending to be a major car producer.

Yet, says Howe, it is not time to declare the Thatcher economic policy a failure: "People who pronounce judgments on the basis of very short periods of time are in the business of pronouncing instant judgments, judgments that are not particularly helpful."

When asked how long a period would provide a fair test of the Thatcher program, Howe responded: "We always made clear that the full effectiveness of our policies would require two Parliaments . . . I would suggest that half-way through the first Parliament, we're past the end of the beginning."

Democratic societies, the chancellor added, "must be persuaded of the necessity of cooling their approach. (They must) lengthen their time span, and stop creating additional problems for themselves and their governments by wishing to do too many things too fast."

But will the British public tighten their belts another notch? Will they give Margaret Thatcher a second term to turn around the British economy? These questions can't be answered with any certainty, but a by-election last week in Croydon may provide a clue. In that constituency, where a Tory candidate won in a walk two years ago, the new third party "Alliance" candidate won over both Tory and Labor candidates. At a minimum, this suggests that Thatcher and Sir Geoffrey had better look for ways to put some oomph in the British economy, fast becoming the basket case of Western Europe.

As R.W. Apple reported in The New York Times, "the Conservative critics of Prime Minister Margaret Thatcher took the (Croydon) result . . . as a confirmation of their argument that her economic policies were electoral poison. They resolved to increase their pressure on her to change course."

One gets the impression--from a distance, to be sure--that Thatcher is tough, most stubborn, and not easily moved. In public, at least, she has an icy demeanor. But she will find it hard to ignore the economic facts behind her declining popularity. Unemployment has risen to 11 percent, and the actual number of jobless threatens to hit 3 million.

In May, l979, when Thatcher formed her government, the unemployment rate was only 5.3 percent. The present level is the highest in Britain since the Depression of the 1930s. While most British officials find all sorts of other reasons (mainly racist) to explain recent riots in British cities, there is almost no doubt that the sick economy, which offers a whole generation of unskilled workers no hope, is tearing up the social fabric.

In contrast to the rest of Europe, which despite enormous economic problems is maintaining a slight increase in real production, real output in Britain will be negative this year. And for the first time in years, real disposable income will be declining.

On the plus side, economic analysts believe that one benefit to be derived from the recession is that British industry has been able to unload excess labor. Later on, that should improve productivity and give a lift to exports, unless, as others fear, Britain in the interim has developed a serious shortage of skilled workers.

The other "plus" factor usually mentioned by British officials, including Howe, is that the inflation rate has been reduced from a 22 percent peak in the second quarter of 1980 to an 11 to 12 percent range currently. There are two things to say about that: first, the reduction comes at a high cost in terms of recession and unemployment. And second, the Thatcher government conveniently forgets to say that when it came into office, the inflation rate was only 9 percent, and was driven to 22 percent by its own confused and contradictory economic strategy of tight money, increased spending, and higher taxes.

Howe's counsel that the public must lower its expectations of how quickly and decisively a government can and should move to correct economic imbalance presupposes a tolerance and patience that probably doesn't exist. If the British economy continues to run down, Thatcher may not get the two Parliaments Howe thinks necessary. Unemployment will continue to be an explosive issue, a challenge not only to Thatcher's Tories, but to the tired, old solutions of the Labor Party.

Croydon may hold a lesson not only for the Tories and Labor Party, but for Republicans and Democrats here at home.