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I expect the damp in the wall is caused by internal factors rather than anything to do with the external render - unless there's leaky guttering or something like that.
The render, however, will be preventing it from drying out. Walls need to breathe, and the 1960s-present fad of slapping cement render onto external walls is a hideous and costly way to prevent damp walls from drying out.
Hack off all the render and in a few months time the wall will have dried.
BobbyBriggs-
Why is it so common to use render in the first place then? Genuinely interested. There certainly are internal issues which I'm seeking to address (cold / damp bathroom) but the render is clearly damaged, letting in water and getting worse.
Unfortunately as this is a shared freehold, that's probably not an option.
Polygon
The render on the back elevation of my flat is probably buggered. Inner wall of bathroom has always been damp, and now, upon drilling through we find it is inside. There are cracks at the edges of windows with a metal edging rusting underneath. Is it a case of ripping it all off and starting again?
Silver lining is the side return seems fine.