The pound rose by 0.8 per cent against the dollar, breaking above $1.57 for the first time in seven weeks, and climbed 0.9 per cent on the euro, hitting €1.4192.
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It also performed strongly against the yen, the Swiss Franc and dollar-bloc currencies.
The data showed a mere 0.1 per cent rise in July year-on-year inflation. But against expectations of inflation either dipping or remaining flat, that represented a positive outcome.
The more eye-catching piece of data, according to some currency strategists, was a jump in core inflation to 1.2 per cent, its biggest increase since February.
The UK and the US are the standout economies in the developed world and both their central banks are edging closer to raising rates.
But like every other major central bank, the BoE is fretting about low inflation, making the decision on a rate rise fraught with risk.
Members of the BoE’s Monetary Policy Committee, which is targeting an inflation level of 2 per cent, are starting to diverge on their views about the timing of a rate rise, helping to stoke trade in sterling.
Sterling gained some support early on Monday — before falling later in the European session — after BoE member Kristin Forbes suggested in a newspaper article that the UK economy could be hurt by a protracted delay in raising rates.
Ian Stannard, Morgan Stanley currency strategist, said Ms Forbes had drawn attention to the importance of core inflation.
“This pick-up in core inflation could well start to to add to the hawkish tone we see in Forbes,” said Mr Stannard.
He cautioned that Morgan Stanley economists believed inflation would fluctuate for a couple of months, a view shared by Barclays and Danske Bank.
“But there is scope for a market reaction when we start to get the data picking up and MPC members become more hawkish,” he added.
Sam Hill, senior UK economist at RBC Capital Markets, said the jump in core inflation “should keep the policy debate lively now that the vote is split”.
But FX colleague Adam Cole warned not to expect a UK rate rise any time soon.
“UK rate futures are 2-3 basis points cheaper after the data, but even after today’s move, the first UK rate hike is not fully discounted until August 2016 and the curve implies almost a zero probability of a hike at the November 2015 meeting,” he said.
