LONDON, Nov 22 Reuters The pound tumbled on Friday after data showed British business output in November shrank for the first time in more than a year, and retail sales also fell by much more than expected in October.

Sterling hit its lowest on the dollar since May, and was last down 0.56 at 1.2517. If future data continues to show economic weakness, the Bank of England may be forced to cut rates more dramatically than markets currently expect.

Britain39;s preliminary SP Global Flash Composite Purchasing Managers39; Index, published on Friday, fell to 49.9 in November below the 50.0 nochange level for the first time in 13 months from 51.8 in October.

Today39;s PMI data were the first real test of the chancellor39;s budget alongside businesses reaction to unfolding geopolitical events, said Sanjay Raja, chief UK economist at Deutsche bank.

British finance minister Rachel Reeves announced a budget in late October, which raised taxes on business and the wealthy.

Underneath the hood, we are seeing stress on hiring plans. Both the manufacturing and services sectors reported falls in hiring plans. And input prices particularly for services have started to firm as businesses digest the budget tax implications.

For policymakers, the key question now will be to assess whether the potential inflationary hit from higher taxes offsets the potential demand hit from weaker private demand.

Gilt yields fell, while markets sightly upped their expectations of Bank of…