Try this! It took me 2 days and I tried everything possible but the solution for me was so unbelievably simple:
Switch off screen lock on your iPhone.
Wipe Apple Watch.
start pairing process from scratch.
go ahead with updates.
DONT USE YOUR IPHONE FOR ANYTHING ELSE!!!
It took me two full cycles to complete successfully as the first time I said download all apps and nothing responded.
second time around worked like a dream.
tbh the 2 days before removing screen lock, I’d tried almost ten times, getting stuck on an error about internet access which was incorrect.
good luck, hope this helps.