I don't think it's the case at all that England has fallen out of touch with its folk music traditions, any more than for any other heavily urbanised country. The book Electric Eden: Charting Britain's Visionary Music by Rob Young is a book entirely about the way that 20th century British musicians in quite a wide range of backgrounds and genres have adapted and used folk music traditions from the past within their own musics, from classical composers like Ralph Vaughan Williams in the 1920s, to folk music revivalists like Shirley Collins and Ewan MacColl in the 1950s to the proliferation of folk rock bands in England in the late 1960s and into 1970s like Steeleye Span, and Fairport Convention. It's worth reading if you're interested in this particular topic. More recently, you might see the folk music tradition in groups like The Unthanks, who are now an institution, being the hosts of BBC TV documentaries focused on exploring "England's winter customs and dance traditions, from Bonfire Night in Lewes to the North East's longsword dancers and East Anglian molly dancers.".

But to give some examples of the British folk tradition, you might get Ed Sheeran covering Bob Dylan's 'Masters Of War'. Bob Dylan is from Minnesota rather than Middlesex, but the British did export their folk tradition to America and the 1960s saw a lot of cross-pollination between the American and British folk songs, and 'Masters Of War' is based on the traditional folk tune 'Nottamun Town', which Dylan likely heard either because of (Kentucky-born) Jean Ritchie's 1950s version of the song or someone who had learned Jean Ritchie's version.

The origins of 'Nottamun Town' are effectively lost in time, but the title is suggestive of a corruption of a song called 'Nottingham Town', and Ritchie herself (an academic as well as a folk song singer) thought it might have originally derived from medieval English mummers plays. It's been suggested elsewhere that the song has an origin in songs like 'Teague's Ramble To Camp', written down in the early 1800s, which itself was based on an earlier folk song from Queen Anne's time (it may well be that the general form of the earlier folk song was influenced by a lineage that includes music from mummers plays, but not knowing the origins of things is the nature of folk music). But Ritchie's version of 'Nottamun Town' was covered by the British folk duo Shirley Collins and Davy Graham in 1964, and by British folk rock band Fairport Convention in 1968. And part of why Collins and Fairport Convention took the tune was that they believed that Ritchie had captured something that was - even if found in Kentucky - definitely originally part of their English musical heritage. There's other folk songs that have become well known in this kind of milieu which have more purely British origins, but the British did colonise quite a few other parts of the world, and left their folk music too.

You also may have a mistaken impression that folk music is 'pure' in a way that pop music is not. But what sounds to us like traditional folk music that goes back to time immemorial is very often the detritus of old (but not that old) pop culture - old pop songs. Younger generations (especially in the days before Google) didn't know or often much care about the difference between very old tunes that have been passed down for generations and the music that was the pop music in the days of their grandparents. And basically since Gutenberg, and more specifically since the the lyrics to popular songs have been written down and published by publishers looking to make money (and this goes back quite a way), the lines between commercial popular music and folk music have been pretty blurred - many of the folk songs collected by Francis Child in the 19th century, and the folk songs recorded by 20th century musicologists with tape recorders in remote rural locations turned out to be based on old pop music, essentially, when researchers did some more digging into old collections of songs.

Put it this way: the music of the Beatles is still under copyright, but in a few generations, the Beatles will be dead, and their music will eventually stop being copyrighted (The Beatles themselves covered an old folk song, 'Maggie Mae', which they may have played in their Quarrymen skiffle band days, but which may originally have been a sailing song that might go back at least to the 1830s). And we think of the acoustic guitar as a venerable gold-standard folk music instrument, played by folk musicians from time immemorial, but the classical guitars and the steel-string acoustic guitars most common in the 20th century are relatively recent inventions, and British folk was very often unaccompanied song. In another hundred years, after almost everyone who saw Paul McCartney play live is dead, anyone playing 'Yesterday' on an acoustic guitar (or whatever instrument by then is considered the epitome of folk music - perhaps some sort of analog synthesiser?) will probably be considered to be playing folk music.

Edit: and make sure you read the fantastic post elsewhere in this comment section by u/DGBD about why we see Ireland as having a particularly strong folk music tradition.

u/hillsonghoods has a good answer to your question as presented, but I'd like to take it from the reverse angle. Ireland, more so than most countries in the world, is strongly associated with folk music. Why is this? After all, maybe England's level of engagement is the norm, and Ireland is the outlier?

One thing to keep in mind, as u/hillsonghoods has pointed out, is that being "in touch" or "out of touch' with folk traditions is largely a matter of perception. Folk traditions aren't some set in stone thing, and so you need to first define what exactly is and is not a folk tradition. Then, in order to establish them as a real, set in stone facet of your culture, you need to value those things because they are folk traditions. Otherwise, you're just kind of doing whatever it is you do. "Folk music" is often set apart from "popular music" as something more pure, more indigenous to the culture. But this sense is largely created, rather than having a basis in the actual history of the music. So it's largely a matter of a culture feeling it necessary to have this sense of folk music, and then defining it and carrying it on.

Irish music definitely fits this criteria. There's a strong boundary as to what is and isn't generally perceived as "Irish folk music." There are a number of organizations and millions of people in Ireland and worldwide that value these traditions, and see them as an original and unique outgrowth of Irish culture. And Ireland does a great job of promoting itself to the wider world as a haven for folk music, a place where traditions are still proudly upheld. So, when people think "Ireland," the sound of fiddles and pipes starts playing their head. You're right to note that this doesn't generally happen when people think of England.

Ireland actually had a pretty much perfect storm of circumstances that created this perception of being a folk music haven. Two major factors contribute to this, and are in large part why we see Ireland as a folk music Mecca today: nationalism and emigration. Nationalism created a great appetite for Irish music and preserving uniquely Irish traditions among the Irish people. Emigration spread that to other countries, where non-Irish people took notice.

Nationalism has always been a big proponent of folk music. It gives the people something common to their ethnic identity that they can identify with. An emphasis on folk music also usually means a de-emphasis on music not "native" to the region, helping to differentiate the "in" and the "out." And putting folk music on a pedestal also means putting the culture that produced it on a pedestal, stoking a feeling of nationalist pride.

You can very clearly see this in action in the writing of Francis O'Neill, who collected Irish tunes and histories of musicians around the turn of the 20th century:

The Folk Music and songs of a nation are treasured, because they were conceived as a melodious poetic expression of the sentiments and feelings of the people. Genuine expression of a nation's soul in tuneful melody cannot be produced to order, for the strains which live are the offspring of inspiration or the spontaneous flow of thought in timely accord with the general social conditions of the people.

...

The Italian peasant while working in the vineyard, Father Burke tells us, has no music except two or three high notes of a most melancholy character. The peasants of Tuscany and of Campagna, when after their day's work they meet in the summer evenings to have a dance, have no music but the beating of a tambourine. But go to Ireland; listen to the old woman as she rocks in her chair, and pulls down the hank of flax for the spinning; listen to the girl coming from the held with the pail of milk on her head, and what do you hear? The most magnificent melody of music. Go to the country merry-makings, and you will be sure to find the old fiddler or old white haired piper, an infinite source of the brightest and most sparkling music.

Never was there a nation which had such a wealth of Folk Music - an infinite variety - tender love songs, witty ballads, deeply emotional poems set to haunting melodies as Ireland and the Irish.

Needless to say, that bit about Italians isn't true; they have plenty of folk music! But the point O'Neill is making is that Ireland, this wonderful country full of wonderful people, has this wonderful music as proof of its unique wonderfulness. This is especially pertinent to Ireland in the late 19th century, since it had been under the often brutal rule of the British Empire for centuries. The need to define Irishness was in large part a need to define it against Britishness, to prove that Ireland wasn't simply a constituent part of a larger whole but its own nation, one that should be able to determine its own future rather than submitting to the will of Westminster.

These nationalist feelings were reaching a fever pitch as the 19th century drew to a close. Alongside the political desire of many to break free from the British Empire (or at least have more autonomy), there was a prevailing sense that the indigenous Irish culture was being lost. To a certain extent this was true, since the Irish language lost a ton of ground to English in the 19th century.

The "Gaelic Revival" was a reaction to this, and saw renewed interest in many aspects of Irish (Gaelic) culture. The Gaelic Athletic Association formed to promote the Irish sports of hurling and Gaelic football. The Gaelic League promoted the Irish language and literature. And there was a renewed interest in Irish music and dancing, which brings us back to Chief O'Neill.

He and others saw Irish music as the pure expression of Gaelic culture, and worked to preserve it. One big issue was foreign influence, which he had strong opinions about. This is also where we see the malleability of "folk traditions" in action. Go to O'Neill's home area in County Cork, and you'll hear a lot of accordion players playing polkas. Today, that would be considered one of the most traditional and uniquely Cork things you could hear.

To Chief O'Neill, though, both polkas and accordions were foreign invaders. You won't find polkas listed in his thousands of Irish tunes, even though he undoubtedly heard them. He was similarly dismissive of accordions, seeing them as intruders, rather than the traditional instruments that they are seen as today:

The German accordeon or melodeon has supplanted the Union pipes and fiddle in the land of the Gael, for the “sets” which may be extracted from the foreign instrument are more “polite” than the jig, reel, and hornpipe of our ancestors.

Chief O'Neill is one of the most celebrated collectors of Irish music, and his tunebooks are still very popular among Irish musicians today. His views were by no means unique in his time, even if by now they seem weirdly antiquated. The accordion, concertina, banjo, and other 19th century inventions are now very well-accepted members of the Irish traditional music family. Still, Chief O'Neill and others of his time drawing the boundaries around what is and isn't "Irish music" helped group a set of somewhat disparate traditions into the genre we know as "traditional Irish music."

Other than the previously mentioned colonialism... Have you come up north recently? Newcastle University has a folk degree where musicians study the various types of music etc in traditional ways. The tunes are alive up here, you just need to look. I'm American, and was in the Irish music scene there, in Ireland for a bit, and now in England. Basically, unless you're nerdy enough (or do Irish dance like me), you aren't exposed to trad music. It's another world. I understand you're talking about English... irish is more popular because the Irish are everywhere and generally great craic. Personally I prefer their trad music. English always makes me want to sit up straight and proper when the Irish and Scottish get more lyrical. It's a great contrast in a jam session when you go from one type to another.

Trad isnt popular since culture and music have changed. Pop is well.. popular and took over most of the population. Our entertainment has also broadened further than what music we can make ourselves. Globalism and increased interconnectivity has caused people to loose some of their distinct qualities and culture (this is obvious in so many ways). Bla bla bla I dont want to write an essay so I'm just throwing some points out there. Hope it gives you some food for though.