BIRMINGHAM, England (Reuters) - The Liberal Democrats, coming to terms with unaccustomed political power, voiced defiance on Monday over their floundering poll ratings but feared that lasting economic stagnation could drag the party down.
Once mocked as a marginal grouping of sandal-wearing activists resigned to permanent opposition, the Lib Dems, holding their annual conference in Birmingham, now have five cabinet ministers in Britain's first coalition government for generations.
But with poll ratings less than half the 23 percent gained in last year's general election, party leaders had to justify their decision to enter government with the Conservatives.
The government has made deep spending cuts to tackle a big budget deficit its central policy, with the Lib Dems hoping that fixing the economy will lend it credibility in future elections.
"We did the right thing," party leader and Deputy Prime Minister Nick Clegg told the conference in a speech greeted with a standing ovation and several rounds of applause.
"We rose to the challenge," he added, "and we did it knowing it meant working with our political enemies and almost certain short-term unpopularity."
Another senior Lib Dem politician mocked those who would have preferred the party to spurn the Conservatives and remain in opposition.
"Those of you who want to be the still small voice of liberal conscience, flitting from (mountain) peak to peak .... like some be-sandaled Tinkerbell, you carry on. I prefer changing things for the better," said Lib Dem minister David Heath.
There were few sandals on show but a man with a tattooed face and a girl with purple hair added splashes of colour to the gathering of elderly middle-class delegates at the five-day conference.
The problem for the Lib Dems of all stripes is that Britain's economy is showing little sign of growth, and some predict a return to recession rather than the stable economy the party hoped would win them voters' gratitude by the next election in 2015.
"We appear to be inadvisedly locked into an economic strategy that isn't likely to produce the kind of economic recovery this country needs," said Ed Randall, a politics lecturer and contributor to a Lib Dem panel considering future policy.
"There's a growing nervousness this strategy isn't working ... I'm definitely not the mainstream, but there are other Liberal Democrats who share my views," he added.
The stakes are high for the both the Conservatives and the Lib Dems on their betting on an economic turnaround, but whereas the Conservatives are ideologically inclined to cut government largesse, the Lib Dems have angered their core voters by backing the raising of university tuition fees and the slashing of social spending.
"We haven't panicked, but we need to a little bit. You need to respect your threat, otherwise you never fight it," Lib Dem party president Tim Farron told Reuters.
The party was trounced in local elections in May by left-leaning voters angry at their alliance with the Conservatives.
The fightback involves Lib Dem ministers trumpeting their role in fresh moves to boost the economy, promoting policies differentiating themselves from the Conservatives but without spooking markets by undermining the coalition austerity plan.
Labour has called for the coalition to slow down the spending cuts, saying Britain needs a "Plan B" to reignite the economy.
Instead Clegg and his senior ministers have in recent days announced plans to stimulate growth while remaining within the strictures of the coalition's austerity programme.
Clegg has announced plans to fast track infrastructure projects while Business Secretary Vince Cable has called for the Bank of England to conduct more quantitative easing -- buying assets such as government or corporate bonds -- to improve access to credit.
"The problem is that the light at the end of the tunnel appears to be going further away rather than closer. That's why we've got to put into practice what some people are calling Plan A Plus," former Lib Dem leader Menzies Campbell told Reuters.
Some among the Lib Dem grassroots were pessimistic that their party would get any credit even if the economy recovered.
"The biggest circulation newspapers all tell their readers all the time that the coalition is rubbish and that the Liberal Democrats are the cause of it. It's difficult to see how we fight that," said Richard Phillips, 72, a retired computer programmer from East Hampshire.
Others took a different view.
"OK, this year we are unpopular. Any opposition party inheriting the most appalling economic conditions for a lifetime is going to be unpopular," said John Goddard, 78, a Lib Dem councillor from Oxford.
"I'm not worried. Politics is a long game."
(Reporting by Mohammed Abbas)