Southgate naming him in the England squad probably didn't do us any favours. If he had been dropped it may have given him extra incentive to look elsewhere for regular playing time.
I don't think we can blame him for not wanting to go to a club fighting relegation when he can stay at City picking up medals and earning 150k a week knowing that the lack of playing time won't affect his England place.
We can only look at ourselves really as we shouldn't have handed such a big contract to someone who was clearly only being brought in as a back-up. However, it's worth saying that it's impossible to get the recruitment right every single time and the Phillips signing is somewhat of an anomaly in the Pep era.
He will probably have to move on for the good of his own career, whether that's in January or next summer but now that he's staying we should get behind him. I personally don't see him coming good in his second season like Grealish but I hope he can play some part whilst he's here as it's never nice to see someone completely ostracised and become a figure of ridicule, especially as he seems like a decent person.