Earlier on Sunday, Liverpool climbed to the summit of the Premier League table after they came from one goal down to beat Brighton and Hove Albion 2-1 at Anfield.
As a result, Liverpool were three points clear of Arsenal and four ahead of City by the time the pair kicked off at the Etihad Stadium.
During what was a cagey affair in Manchester, neither team managed to create any big chances and the match ended in a disappointing 0-0 draw.
Now, it is advantage Liverpool in the title race as they are two points clear of Arsenal and three clear of City.
Speaking after the match, Guardiola said Jurgen Klopp's men are now the favourites to lift the title.
He said: “They are in first position. They are top of the league so that is how it is. There are still nine games to go so we will see what happens.
“Arsenal are the second favourites, we are the third. Whoever is top is favourite. It was in our hands. Now it's not.”
Guardiola added: “All we can do is think of Aston Villa [on Wednesday]. If you are top of the league – like we’ve been before – you are favourites.
“We prefer to win obviously. We take the point. A tight game. I recognised my team, I’m so proud. They tried. Our intention was there. We’ll see what happens. We need to refresh our minds and legs before Aston Villa [on Wednesday].”
Meanwhile, Arsenal boss Mikel Arteta said: “We are improving, we are competing better and we are understanding how to compete in these games.
“There’s another step to make to win championships and that’s that you have to win. Today we were able to draw and we have to improve a lot to win.”
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