Try Kayospruce (tel 01489 581696) - they sell marine and technical fabrics, and they do sell a lightweight knitted polyester which is ideal for flags. I'm pretty certain that they sell direct to the public, but if you have any problems contact me and I could help you out.
Last year we took part in the Classic Malts Cruise and we had to aquire a set of flags in order to look festive. I had every intention of making a set myself, but I didn't get around to it, so we ended up buying a cheap set of flags on a string; they were better than nothing, but only just. At least if you make your own you can make really big flags that look fantastic. Anyway, I got a full set of patterns and making up intructions from a web site which I think was called www.sailrite.com.
Ask Jimmy Green Marine. They used to sell flag making kits - cloth of various colours, toggles and edging material. Don't know if they still sell the kit, but they do still sell all the individual bits and the cloth.