Data shows 192,963 units were produced last month, compared to 172,353 in July 2016.
Production for the home market rose from 74,696 to 93,767, while production for the export market rose from 97,658 to 99,196.
Year-to-date data shows more than 1.6 million engines have been produced so far – up 4.5% on 2016.
SMMT chief Mike Hawes says: “The UK’s engine manufacturing sector has recently enjoyed billions of pounds of investment into plants and R&D, so it’s good to see returns continue in 2017. Given the direct link between this industry’s success and demand for new cars, both in Britain and overseas, maintaining the free and frictionless trade we currently enjoy with the EU and other key international markets will be critical to ongoing investment and growth.”