I simply think City didn't expect that their team would be flying like they have. Sanchez would be a luxury signing for them at this point with Sterling and Sane in brilliant form. They can barely give Bernardo Silva the playing time that his talent deserves. Sanchez could disrupt the dressing room and screw up morale between players, especially with the wages being thrown around.
On the other side, United really need a star player in attack.
Sanchez is desperate to get away from the sad state that Arsenal is in, and he would get a very lucrative contract while being the new star at United.
I would be quite surprised if we don't have this in the bag, but it wouldn't bother me too much if City suddently came back in and got him. I just don't see why they need him that much, unless they are worried that Aguero and Gabriel Jesus isn't enough for the striker position.