It isn't. If you are attacked by an enemy and you retreat on the campaign map, then you have used up all your movement points. If the enemy pursues and attacks once more right afterwards while you have no movement points left, the option to withdraw both on the campaign map and in battle is disabled.

This represents your army having run out of all options but to fight where they stand. Kind of like when Caesar pursued Pompei to Greece, but then Pompei got reinforcements and his army grew tenfold and the pursuer became the pursued. They retreated for a while until there came a point where they had no option left except to fight.

Navies have never been able to withdraw, and you can't withdraw when you are defending a city under any circumstance whatsoever.