I think you've got it pretty well entirely the wrong way about, "GUEST,Minnesota", so far as the relationship between the terms "World Music" and "Folk Music" in Britain.

There's a tendency by some people to exclude British Folk Music from "World Music", but by and large this is by people who tend not to see British Folk Music as worthy of inclusion, and who see the term "Folk" as a term to avoid.

I don't really think many people who are into folk music here would even dream of thinking that the only folk music is that originating in these islands. Every sizeable folk festival is liable to have musicians and bands from other traditions. Some of the most successful bands over the last decades have specialised in music from elsewhere - Blowzabella for examplee.

As you say "folk' refers to the indigenous music traditions of any ethnic group", and that is how it is generally used, in my experience. (Apart from those who might say they hate "folk", and you find they are using the term to mean merely Morris tunes and Irish tunes and so forth and their American relatives, together with singers who sport guitars.)