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@benbrangwyn
Have you checked that it's not the hub? To do that, just spin the cranks and pull on the little chain that activates the gears (where it comes out of the rear axle on the drive side). You should feel tension on the chain, but it should move in and out freely. If that's ok, then it was a cable/casing problem.
Often it's the cable that's the culprit, and a quick going over with some light sandpaper and then squirting oil into the casing sorts it out.
If the casing you have is gear casing and a) the cable moves smoothly in it, b) handles the routing around the frame and c) it fits into the casing stops on the frame, then I'd go ahead and use it. The Sturmey cable I've found to be very pliable, so I'd be very surprised if the modern stuff was problematic in terms of compression.
Cheers. DoctorBike.