City are now champions-elect after last night's derby win.
"[Manchester City] have been the best side," Royle told talkSPORT.
"Sir Alex [Ferguson] has done fine with not a great United side by their standards and the loss of [Nemanja] Vidic meant it would be hard for them. I think they have done great to get anywhere near City this year.
"You look at the two teams last night and you have got to say if you were picking a Manchester team it would predominantly be City players, with only [Wayne] Rooney and probably a fully fit Vidic assured of their places.
"City at the moment are the dominant side in British football and ready to go on if they spend on even bigger players. The sky is the limit for City at the moment."