At this point, I honestly believe that City should not care about UCL at all this season. It is not going to end up with them winning it, we can see that and know that, and going any further would give them just a smaller amount of money that they do not need, they are already a rich club. So, it would make more sense if they could just end up with a better return without having any of these issues.
I believe that we are going to see something great here, something that benefits everyone, and that will not be all that easy to recover if they focus on UCL too much. Ignore UCL, and focus on EPL and try to be in the top four at the end of the season, that is all they should be caring about at the moment.
The problem that Manchester City is currently facing is very complicated and also wants to surprise when in the last 4 seasons they were actually very good and in a very short time they finally declined drastically. It is very natural when they focus on the Champions League, because this is also the biggest competition they play, apart from the English League. But what you said is also true, when their focus is divided then it will make them need a long time to recover. while in the English League itself they are still very difficult to get a win after experiencing a decline.
Manchester City's problem right now is going worse and their reputation is almost being affected because they are not doing well in all competition, if they shift their focus on fighting for their position in the champions league they will still not get better because they have had zero points in their last two matches in the champions league while in the English Premier League where they dominated for 4 years they have been struggling to get a point in their last 5 matches, I think what the team needs now is just to work on getting back to their feet as they can not get better even though they decide to become more serious in the champions league than their domestic league. Manchester City can not get a trophy with this performance they are currently on right now I think it's time for Pep Guardiola to think of rebuilding the team again.