New to the format. What should I get for ~£700?

I have an Olympus OM-D EM-5, and would buy it again, but I think the best current value is the Panasonic GX1, which can be had new with the older 14-42 kit zoom for about half of your budget.

£379 via amazon.uk:

http://www.amazon.co.uk/Panasonic-DMC-GX1KEB-K-Compact-System-14-42mm/dp/B00638QMEG/ref=sr_1_1?s=photo&ie=UTF8&qid=1348337972&sr=1-1

The collapsible 14-42 zoom would be more pocketable, have slightly poorer optics, but would add £200 to the cost.

I would apply the remainder of your budget to a fast prime for low light/high sharpness shooting. The best current deal there would be the widely acclaimed Olympus 45mm 1.8 portrait length lens:

£219 via amazon.uk:

http://www.amazon.co.uk/Olympus-M-ZUIKO-DIGITAL-45mm-Lens/dp/B0058G40O8/ref=sr_1_1?m=A3P5ROKL5A1OLE&s=photo&ie=UTF8&qid=1348338229&sr=1-1

Apply the remaining £100 of your budget to saving for a sharper wide (the Panasonic 14mm is £217), an inexpensive starter tripod, or beer.