Just over 136,000 vehicles were built in British factories, up 7.8% on July last year, the Society of Motor Manufacturers and Traders (SMMT) has reported.
Many carmakers increase production in July ahead of the key selling month of September, when new licence plates are issued.
Cars made for export - representing the majority of those produced - rose by 5.3%, while there was a much sharper upturn for the domestic market.
SMMT chief executive Mike Hawes said: "As the timing and length of these manufacturing pauses can shift each year, market performance comparisons for July and August should always be treated with caution.
"But as long as the economic conditions at home and abroad stay broadly stable, we expect new car production to remain in line with expectations for the rest of 2017."
The number of cars built for the UK market rose by 17.7% to almost 30,000 in July, reversing seven consecutive months of decline. The vehicle production total for domestic sales is down 6.5% to 212,700 compared with the first seven months of 2016.
The slowdown comes as the number of new cars registered in the UK fell almost 10% in July - the fourth month of declines. About 162,000 vehicles were sold last month.
This week, Ford became the latest carmaker to introduce a scrappage scheme, offering drivers a £2,000 discount for cars more than seven years old. It joins other popular manufacturers such as Vauxhall, MINI and Mercedes - all offering generous trade-in deals in return for older vehicles.