The term angels to indicate altitude has its origins in the Royal Air Force. Stories vary on when it entered the lexicon, but it was used, by the time World War II broke out, as a speech code for altitude when ground controllers were speaking to aircraft over the R/T - the somewhat low-quality voice radios available at the time. The most frequent explanation for the word was that it arose from the phrase 'up where the angels fly' and was selected as a short distinctive word that did not sound like numerals. Altitudes were given in thousands of feet, using the term, as in for example "angels fifteen" would mean fifteen thousand feet.
Since the phrase was originally used by ground control, and by those using the newly invented search radar, it was used to mean height above ground level (AGL) - the ground controllers did not usually have the local altimeter settings for the aircraft they were communicating with. Aircrew talking amongst themselves would use it to indicate (mostly) relative altitude. To the best of my knowledge (which admittedly may be woefully incomplete or incorrect) the term is not a phoenetic arising from pronouncing 'AGL' to save time.