Jose Mourinho believes Manchester United and Manchester City have taken big steps forward this season.
The sides meet in the Manchester derby at Old Trafford on Sunday, live on Sky Sports, with United trailing Premier League leaders City by eight points in the table.
Mourinho feels his side have improved in his second season in charge but acknowledges City are also significantly better in their second campaign under Pep Guardiola.
"We are a better team than last year, no doubt about it but I think City is also a better team than last season," Mourinho said.
When asked how good City are, Mourinho replied: "Very good."
The game is pivotal for United's title hopes as they attempt to halt the momentum of a City side who have dropped just two points from their opening 15 Premier League games.
Mourinho acknowledged the derby represents a big opportunity for his United side but was keen to stress the game is still only worth three points.
"To me it is one more big match against one of the best teams in the country, the first against the second. It is a big match," Mourinho said, when asked about the magnitude of the game.
"I don't need to know that a derby is something special for the people. For us, in the end, it is three points but honestly, I think for the people born in the city and feeling the colours, it is a good positive rivalry and a special match."
United's record signing Paul Pogba misses the derby as he begins a three-match suspension following his red card against Arsenal last weekend.
Marouane Fellaini is a potential replacement for the Frenchman but is still working his way back from a knee ligament injury picked up while playing for Belgium in October.
Mourinho says Fellaini will be assessed on Saturday to determine his availability but Zlatan Ibrahimovic, Phil Jones and Nemanja Matic are all able to play.
"Zlatan is available. Jones is available. Fellaini I have to wait until tomorrow. Bailly is not available. Carrick is not available. Matic is injured but he plays," Mourinho said.