Jurgen Klopp’s side have been chasing a record-breaking nineteenth straight league win however were properly below par and only registered one shot on target.
Watford, who began the game with only Norwich beneath them in the table, created the better possibilities and ultimately took the lead their play deserved 9 minutes into the second half when Ismaila Sarr poked home Abdoulaye Doucoure’s pass from the left.
On the hour mark, Watford’s record-signing made it two when he raced clear and fantastically dinked the ball over Alisson.
The Senegal international then became provider when he intercepted Trent Alexander-Arnold’s returned bypass and laid again for Troy Deeney to guide the ball into the net.
It was the second time in a week that Liverpool have gone behind and had their invincible league season put below threat, but unlike against West Ham on Monday they could not turn it around.
Victory for Watford sees them climb out of the bottom three on goal difference, going above Bournemouth, who had before drawn 2-2 with Chelsea.
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