Reading is a remarkable neural feat and clearly unique to humanity. Since all mental dexterity is made harder if your very short-term memory is weak, it certainly makes learning to read harder.
Can decode a short word but not a long word
Difficulty following the meaning of a sentence
Difficulty repeating a string of 5 digits
Difficulty remembering a string of items over a short period
There are two different areas of processing in your higher brain function. When you are consciously thinking about something you do that in your "declarative" memory. Once something has become an automatic routine it operates in your subconscious, "procedural" memory.
For instance, when you learn to drive a car there seems to be a dozen things to be thinking about as you approach a junction. Your declarative memory is very stretched to perform all the tasks in the right order. However, a year later you drive across town without a thought really, because all those processes have moved into your procedural memory. That then frees your declarative memory to deal with other things, like talking to your passenger or any unusual situations on the road. That is one reason why experienced drivers are safer than learners, even if they are driving less "correctly". It is also why you should never chat with a learner driver!
As you learn to read by decoding, you have to consciously think about each letter-pattern to sound relationship, store the sound for each letter pattern and then blend all those sounds into a word. Then you have to store that word and start the process again. With a weak short-term memory this all becomes very hard and laborious, sometimes to the point where people despair of achieving progress.
One reason this issue is particularly severe for learners of reading in English is the huge complexity of letter pattern to sound relationships in our spelling. It takes a lot of thinking about. So we get good results with Guided Phonetic Reading, because the visual images for the sounds reduce the amount of thinking the learner has to do, to work out the sounds. This then frees the declarative memory to focus on the blending. We certainly do not view this as a barrier to progress.
Nonetheless, progress does still tend to be slower and more incremental over the weeks and months.
In the longer term, with the right daily practice, the process will still eventually drop into the procedural memory. At that point the weakness of the declarative memory ceases to become such an issue.
You can also strengthen the declarative short-term memory with exercises. A good educational psychologist can help with that. An improved short-term memory will help someone with their education across the board, not just with reading.
Another process we find very effective is to get the learner to decode 4-5 words and then reread them until they are fluent before moving on. This speeds the transition to procedural memory. And when reading with a learner you should give absolutely as much help as is needed to achieve each decode. Approach each decode as a team, with the learner putting in as much as possible, but never left stuck.