Your gauge might be faulty. No way for us to check it.
Typically, you can exceed max tire pressure by a "bit", but obviously we can't recommend that.
Your tube will work. Not ideal to stretch it that much, but better than letting it sit on the shelf.

Tubes don't "explode" unless they escape the confines of the tire.
Was the tire flat when you pumped it up? It sounds like the bead seats weren't lined up properly.

Is this an OLD steel rim? Many of the OLD 27" rims are straight flange instead of "hooked bead".
Tires are much more likely to blow off those rims.
85 sounds a bit high for a 1-3/8x27" tire. The only ones I've seen in that size are the CHEAPLY made Bell folding tires at the dept. store.
Edit-
To quote St. Sheldon-
"Note on tire/rim compatibility:

Traditional 630 mm (27 inch) rims were straight side design, but in the late '70s they evolved to a "hook edge" design which would permit the use of higher pressures.

These days, many 630 mm (27 inch) tires are marked "For hook edge rims only" (some companies use the term "crochet type" instead of "hook edge"...this is the result of poor translation.)

The fact is that modern 630 mm (27 inch) tires will work on older straight-side rims, but they won't handle as much pressure as they are capable of with hook edge rims.

Generally, the "rule of thumb" for traditional 630 mm (27 inch) tires is that they should be inflated to 70-75 psi. This shouldn't be a problem with any tire, despite whatever disclaimer the manufacturer puts on the sidewall. However, if you're restricted to this pressure range, you probably shouldn't be running tires narrower than 1 1/8, or preferably 1 1/4, unless you're a very lightweight rider."