First force restart the watch. i.e. press and hold both the side button and Digital Crown for at least 10 seconds, then release both buttons when you see the Apple logo.
Then Force Restart the paired iphone
Force restart iPhone – Apple Support (UK)
Then in the iphone, Settings, General, Transfer or reset iphone, Reset, Reset network settings.
Make sure you have no VPN or VPN based ad-blocker. Uninstall it then remove any profiles (iPhone Settings, General VPN & Device Management)
Then reset the router to factory settings which usually involves a paperclip in a little hole.
Reconnect the iPhone to Wi-Fi and try updating the Watch again. It must be on the charger to update.
Some users have reported that turning off the iPhone Wi-Fi and using cellular data can also get round this.