Arsenal's heroic failure to overturn a first-leg deficit in their clash with Bayern Munich at the Allianz Arena leaves the Premier League without a representative at the quarter-final stage of Europe's most prestigious tournament for the first time since 1996.
Many would argue it underlines a general decline in English football, with Arsene Wenger expressing dire warnings immediately after Wednesday night's game, but Neville does not think the situation is that bad, saying: "It works in cycles."
Speaking on his return to old club Bury Juniors FC as part of the FA Community Awards 2013 presented by McDonald's, nominations for which can now be made at www.mcdonalds.co.uk/kickstart, Neville added: "We are not in a strong moment. There is no point denying it.
"From 2005 to 2012 we had eight or nine finalists, which is a ridiculous success rate when you include semi-finals as well.
"But Barcelona and Real Madrid are stronger, the German teams are stronger, Juventus look like they are getting back to it.
"You cannot always be at the top. Maybe we are having a period where we are in a little bit of a dip.
"But it may change around completely next year or the year after."
Neville will be getting his head back to England matters next week, with manager Roy Hodgson due to name his squad for the forthcoming World Cup qualifiers against San Marino and Montenegro on Friday.
The major focus will be on whether Rio Ferdinand gets a recall given Phil Jagielka has been ruled out with an ankle injury, Joleon Lescott has started just one game of the last four for Manchester City, Chris Smalling was reduced to Under-21 duty at Manchester United on Monday and Gary Cahill has been struggling for form at Chelsea.
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