The Sri Lankans posted a solid score of 256-8 on Sunday before England were bowled out with just 99 runs on the board.
The five-match series is now levelled at 1-1 ahead of Wednesday's encounter at Old Trafford.
"I can't explain it - the ball did a little bit but we just stuttered throughout," Morgan told BBC Sport. "We lost wickets continuously throughout the whole innings and under-performed massively.
"We've been outplayed here in conditions we normally thrive on and we've played poorly."
Morgan finished the contest as England's highest scorer with a knock of 40.