I always thought it was illegal - the only post I have ever opened was Christmas cards addressed to tenants of mine for whom I have no forwarding address, to see if there is an address inside to which the card could be returned - and I felt really uncomfortable about it.
I found this on another chat forum:
from the Post Office Act 1953:
Criminal diversion of letters from addressee
(1)If any [F1person not engaged in the business of the Post Office] wilfully and maliciously, with intent to injure any other person, either opens or causes to be opened any postal packet which ought to have been delivered to that other person, or does any act or thing whereby the due delivery of the packet to that other person is prevented or impeded, he shall be [F2liable on summary conviction to a fine not exceeding level 4 on the standard scale or to imprisonment for a term not exceeding six months or to both]
(2)Nothing in this section shall apply to a person who does any act to which this section applies where he is parent, or in the position of parent or guardian, of the person to whom the postal packet is addressed.
So from this, if you are still getting your post, it would appear that it is NOT actually illegal but it is still morally reprehensible. And you don't know whether or not your neighbour could use the info for malicious purposes, especially if it is bank statements or anything like that - if anything happened as a result of him opening your post, you could have him on the first part of the above.
HTH - you could also try adding a housename to your address and notifying the Post Office and also all your important senders, so that your post doesn't end up at your neighbour's house any more. I would also consider talking to your local delivery centre about the problem.