...therefore Pep Guardiola still needs Kyle Walker's services at least until next season.
Of course, but the problem is that Pep wouldn't need his services throughout the season, he will be picked specifically for certain games, just like what happened last season. I'm pretty sure Walker doesn't want that, he wants to move to a team in which he can start nearly every game, and he knows City can't give him that and this is why they are offering him just a one year contract. If kyle Walker leaves City, it is because he knows that his game-time at the Etihad would be quite limited next season.
Kyle Walker is a talented enough defender but unlikely to find a place in City's starting XI. Because there are more talented defenders than Kyle Walker in City's squad. Cancelo, Dias, Ake Laporte, and Akanji are all experienced and talented enough. Kyle Walker's age is about 33 years now. Now Kyle Walker has the ability to serve any team for another 3/4 years. Kyle Walker's fitness is good enough. He should find a new team now. And after 2 1/2 years, no major team will be willing to sign the aging Kyle Walker.
But until now Pep Guardiola still really wants Kyle Walker to stay at Manchetser City, indeed Kyle Walker is not included in the main squad but Kyle Walker is believed to be a suitable coating to keep the team's performance stable so Pep Guardiola still wants to keep him.
Now there are several teams that want Kyle Walker, even top European teams like Bayern are interested in Kyle Walker, but this transfer is still unclear because Man City still wants to keep Kyle Walker.