"Mufti" is a WWII era term meaning "civilian garb." "In mufti" basically means being on leave in civvies.

"Mufti Day" is casual clothes day at school, though the term has, I think, been replaced by things like "jeans Friday" and whatnot. Kids get to come to school in civvies rather than uniform. I do know that when I was at grammar school, it was all uniform all the time. Bastards.