It is perfectly legal for a resident to install CCTV (even with recording and playback capabilities) and, in the normal course of events, this will be done to protect one’s own property against the threat of intruders and trespassers.
However, if the cameras are directly pointed towards others property , then it is privacy issue.
The Law regarding it is covered by the Human Rights Act under your rights to privacy. Article 8 of the Act entitled “The Right to Respect for Private and Family Life, Home and Correspondence” means that your neighbour might well be breaking the law here.
As you have right of privacy within your house, and can not be recorded by your neighbour.
You need to send a cease and desist letter to your neighbour asking them to remove the camera from the window as it is directly pointed towards your house and ask them to stop their conduct, ( pointing the camera to your property)and that if they do not within 3 days, then you can apply to the court for the injunction orders, where court can ask the neighbour to remove the camera and pay your legal cost.
That letter may well be enough to stop the conduct - as an injunction is a serious legal remedy.