Laravel Sail Docker can't connect to database when migrating

I’m migrating my Laravel 10 project over to Sail. I’m running on Windows 10 and have WSL installed. Everything is working apart from connecting to the database. I keep getting:

SQLSTATE[HY000] [2002] Connection refused (Connection: mysql, SQL: select * from information_schema.tables where table_schema = domainmonitor_db and table_name = migrations and table_type = ‘BASE TABLE’)

I can login via PHPmyadmin using the username sail and password password, but if i try to manually create a database through there I also get:

#1044 – Access denied for user ‘sail’@’%’ to database ‘domainmonitor1_db’

Here’s my .env setup for database

DB_CONNECTION=mysql
DB_HOST=mysql
DB_PORT=3307
FORWARD_DB_PORT=3307
DB_DATABASE=domainmonitor_db
DB_USERNAME=sail
DB_PASSWORD=password

I have tried changing DB_HOST to many variant such as 127.0.0.1, host.docker.internal, localhost, nothing seems to work. What am I missing?

services:
    laravel.test:
        build:
            context: ./vendor/laravel/sail/runtimes/8.1
            dockerfile: Dockerfile
            args:
                WWWGROUP: '${WWWGROUP}'
                NODE_VERSION: '18'
        image: sail-8.1/app
        extra_hosts:
            - 'host.docker.internal:host-gateway'
        ports:
            - '${APP_PORT:-80}:80'
            - '${VITE_PORT:-5173}:${VITE_PORT:-5173}'
        environment:
            WWWUSER: '${WWWUSER}'
            LARAVEL_SAIL: 1
            XDEBUG_MODE: '${SAIL_XDEBUG_MODE:-off}'
            XDEBUG_CONFIG: '${SAIL_XDEBUG_CONFIG:-client_host=host.docker.internal}'
            IGNITION_LOCAL_SITES_PATH: '${PWD}'
        volumes:
            - '.:/var/www/html'
        networks:
            - sail
        depends_on:
            - mailpit
            - phpmyadmin
            - mysql
    mailpit:
        image: 'axllent/mailpit:latest'
        ports:
            - '${FORWARD_MAILPIT_PORT:-1025}:1025'
            - '${FORWARD_MAILPIT_DASHBOARD_PORT:-8025}:8025'
        networks:
            - sail
    phpmyadmin:
        image: 'phpmyadmin:latest'
        ports:
            - '8080:80'
        networks:
            - sail
        links:
            - mysql
        environment:
            - PMA_ARBITRARY=1
    mysql:
        image: 'mysql/mysql-server:5.7'
        ports:
            - '${FORWARD_DB_PORT:-3307}:3306'
        environment:
            MYSQL_ROOT_PASSWORD: '${DB_PASSWORD}'
            MYSQL_ROOT_HOST: '%'
            MYSQL_DATABASE: '${DB_DATABASE}'
            MYSQL_USER: '${DB_USERNAME}'
            MYSQL_PASSWORD: '${DB_PASSWORD}'
            MYSQL_ALLOW_EMPTY_PASSWORD: 1
        volumes:
            - 'sail-mysql:/var/lib/mysql'
            - './vendor/laravel/sail/database/mysql/create-testing-database.sh:/docker-entrypoint-initdb.d/10-create-testing-database.sh'
        networks:
            - sail
        healthcheck:
            test:
                - CMD
                - mysqladmin
                - ping
                - '-p${DB_PASSWORD}'
            retries: 3
            timeout: 5s
networks:
    sail:
        driver: bridge
volumes:
    sail-mysql:
        driver: local