Phillips, 30, made the move from boyhood club Leeds United to Man City for a reported fee of £42 million back in 2022.
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He has since made just 32 appearances across all competitions for the club and been shipped out on loan on three separate occasions.
The midfielder was at Sheffield United for the second half of 2025-26 but only managed to make three appearances due to fitness issues.
According to ESPN, despite his struggled at the Yorkshire club, Sheffield are working on a move to bring him back.
It’s understood that it would be another loan deal, this time for the full season, with Phillips still having two years left on his Man City contract.