In rural England the English flag has almost no political connotations on the part of people that fly it. It basically means the second one. For example almost every village church will fly it. They have probably been doing so in some cases for 500 years and don't give the political implications any thought.

It is slightly evocative of a kind of gentle conservatism which has mild undercurrents of racism/xenophobia for some people because rural England is overwhelmingly white and slightly old fashioned. (People call this "Jam and Jerusalem")

Basically it reminds people of the village council from Hot Fuzz.

(Source: grew up in Dorset)

Completely separately to this is has a recent history (80s) where it can be seen almost like a Confederate Flag in some contexts. It was aggressively adopted by fascists and also the subject of a tabloid conspiracy where they suggested immigrants hated it so people started flying it as an anti immigrant "this is our land" type thing.

This isn't the context you saw it in, but it's impossible to completely disentangle this new meaning, everyone is aware of it.