The Chartered Institute of Purchasing and Supply/Reuters purchasing managers' index shot up to 56.3, its quickest expansion since October 1994, from an upwardly revised 55.0 in June. A figure above 50 indicates expansion.
However, with investors widely expecting the Bank of England on Thursday to deliver the fifth quarter-point rate hike since November.
The UK manufacturing PMI came in way higher than analysts' expectations of 54.5 and the news boosted sterling as far as $1.8333.
By 1500 GMT, it trimmed those gains to stand a third of a percent higher on the day at $1.8264 but still was near the day's high 65.82 pence per euro.
News that US manufacturing expanded in July for a 14th straight month and employment in the factory sector was still on the increase helped the dollar against the pound and the euro.