It was going to catch up with them eventually.
It's a combination of lots of different things - other teams getting better and braver, the pressure of us chasing them down in 18/19 and winning in 19/20, their best players retiring or fading, officials getting wise to their tactical fouls, and Guardiola slowly falling apart once we were inside his head. The other big factor of course is Guardiola's inability to build a defence there - he relied on playing keep-ball and scoring lots of goals for 3 years, but once their midfield is bypassed they fall to pieces as a unit and everyone knows it.
Imagine working for an organisation where all the best staff are leaving or past their best, and the leadership team can't seem to find anyone good enough to replace them - no matter what they spend or wages they offer. Then your manager seems increasingly unhinged and erratic, and other organisations are sensing your vulnerability. Confidence would naturally ebb away, especially if the company up the road seemed to be doing everything right, on a fraction of the budget and without any of the drama.
When the '
Man City do tactical fouls to stop teams counter-attacking after City have committed loads forward to swamp the opponent's third' became a ubiquitous thing amongst pundits, journos and fans throughout the country, and refs began to finally do their job, Guardiola had two choices:
1) try to ride it out, keep tactical fouling with maybe more subtlety if possible (and hope refs forget about it)
2) amend tactics to stop relying on tactical cheating
He seems to have chosen the latter option. Perhaps as the most skillful exponent of the dark art, Fernandinho, has aged and become less mobile. We don't see as much of the blitzkrieg attacking and they have become far less effective overall (still good enough with some excellent players to overwhelm most teams... but 'most teams' is no longer good enough)
The problem is twofold. We can now see that his teams were so dependent on the cynical cheating that now against either quality teams or teams who are very good at countering, they can struggle. And secondly, his managerial limitations are exposed as he cannot adapt to devise an effective alternative.
The annoying thing is that pundits now will come up with a dozen different reasons for why they're not doing as well now, yet I've never heard one bring up the tactical fouling issue and them finding it difficult to adapt since reining back on it.