Why was the TV show in the flesh cancelled?

The reason for the cancellation? Economics. Here’s the official statement from BBC Three in the UK:

"BBC Three is very proud of the two award-winning series of In the Flesh. However, given there is only budget for one original drama series a year on the channel it won’t be returning.
We loved the show but have to make hard choices to bring new shows through and create room for emerging talent. Huge thanks to the BAFTA award-winning writer Dominic Mitchell and the superb cast."
http://tvseriesfinale.com/tv-show/in-the-flesh-bbc-series-cancelled-no-season-three-35345/

Lack of viewers.