Mail showing incorrect number of flagged emails
•   Quit Mail if it’s open.

•   In ~/Library/Mail/V7/MailData, delete any file that begins with “Envelope Index,” such as Envelope Index or Envelope Index-shm.

•   Your home Library folder is hidden by default. To display it, choose Finder > “Go to Folder” and then enter “~/Library”

•   Open Mail.

•   Mail creates new Envelope Index files. This process may take a few minutes, depending on how many messages Mail is reindexing.

•   It will fix your issue.