The UK Disability Discrimination Act 1995 (DDA) makes the following observation -
A Person has a disability under the DDA if they have a physical or mental impairment that has a substantial and long-term adverse effect on their ability to carry out normal day-to-day activities.
Dyslexia can constitute a disability if it has a substantial and long-term adverse effect on the ability to carry out normal day-to-day activities.
These activities do not include work of a particular form, but can include promotion assessments and examinations as these are normal, if irregular, activities.
When assessing the effect of a disability, the comparison is not with the population at large, but with the way in which the individual would carry out the activity if not impaired.
The above statements are largely directed towards the treatment of someone within an employment scenario. Training for a PPL and exercising the priviledges of the license would, I imagine, fall outside the scope of 'normal day to day activities'.
If there is no grounds for disqualification from training on medical grounds then the matter is a safety issue as determined by the competent authority. They may take the position that the format of formal examinations exists in part to demonstrate an ability to read and write which is necessary for the safe operation of an aircraft. However if they are willing to accomodate the provision of a reader and/or scribe to help your student through the exam then perhaps this is a form of approval.
Finally there are varying levels of severity with dyslexia. There are many pilots flying with mild dsylexia but i feel sure they are all capable of reading and absorbing the information required to plan and conduct a safe flight, as well as being proficient at carrying out nav calculations in the air when required to do so.
As an instructor maybe you could help to make this determination of your student. Would you be happy to let this student plan a solo xc flight from scratch, execute a diversion if weather forces one, and complete all the necessary paperwork after the flight - without any input from another person? At this point in time you are probably best qualified to answer your own question.
Best of luck