The 19-time English champions edged a seven-goal thriller against Reading last weekend, with Robin van Persie securing a 4-3 victory at the Madejski Stadium.
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The Red Devils have only managed to keep three clean sheets in the Premier League this term, while Ferguson’s men have conceded 21 goals in 15 games.
United are three points clear of City, but the 70-year-old admitted his side must improve defensively if they want to get a positive result against the Citizens.
“It’s going to be a massive game and if we defend like we did at Reading we’ll be in trouble,” Ferguson told United’s website.
“If we win [on Sunday] it will be one of our best ever results because they’re a really good, powerful team with massive players. It won’t be easy.”
City and United have moved clear of third-placed Chelsea, but Ferguson refused to rule the Blues out of the title race with 23 games left to play this term.
“At this time in the season you can’t really say it’s a two-horse race,” he added.
“If you think back we were 12 points behind Chelsea at one point and when Arsenal beat us in the league in 1998 we were 11 points clear.
“The important thing for us is to take lessons from the mistakes we’re making and do something about it. We need to find a solution.”