I am one of those arguing that it is the case. In the document I linked earlier is stated the following, clearly the electronic cancellation happens a lot earlier (i.e. on application) than the physical cancellation.
"When we authorise a renewal or replacement of an old passport, the passport issuing system automatically updates the old passport record on Main Index (MI). The system will cancel an old passport record, when the:
• old passport number has been correctly captured in the previous passport field on the Application Management System (AMS) which only happens, if: o one passport number is in in the previous passport number section o the passport application is not for an additional passport o the cancel passport box is ticked on AMS
• details can be traced on MI, the customer’s details match and the Document Management Service (DMS) have processed the renewal or replacement application"