Volvo‘s new lower medium V40 replaces the saloon S40 and estate V50 as a more mainstream small hatchback, and has been designed to become a core like-for-like rival to the BMW 1-series, much in the way that Mercedes has transformed the A-class to also become a direct competitor.

Having already sampled the D2 engine that will dominate sales, the V40’s first appearance in the UK gave us the chance to try the D4, a 177hp version of the 2.0-litre engine that will take on BMW’s 120d. As with most of the V40 range, its main trump card is CO2 lower than its German rivals. While the 115hp D2 engine headlines at 94g/km, this most powerful diesel is still impressively efficient at 114g/km and an official 65.7mpg, compared with the BMW’s 123g/km and 60.1mpg. The new A-class won’t fare much better, and Audi‘s A3 Sportback manages 122g/km and 61.4mpg, although that car will be replaced by a new version in 2013.

The engine is plenty rapid enough, if a little slow to react and offer maximum acceleration, and while the driving experience doesn’t match that of the 1-series, the V40 can certainly hold its own.

As is the case with running costs. KwikCarcost put RVs at 40.3%, an impressive figure that is only 1.7 percentage points behind the BMW, and ahead of the now ageing Audi Sportback. Kit on the SE, likely to be the most popular corporate choice, is also good, while standard on all V40s is the firm’s City Safety system, which will now prevent or mitigate accidents at 30mph rather than the previous 18mph.

The new car is slightly compromised in terms of rear space, but so are its rivals, and the boot feels larger and more practical than its 335-litre figure suggests, certainly no less so than the 360 litres of the 1-series and more so than the new A-class’s 341 litres.

There’s now an impressive level of choice in the lower medium premium segment, and the Volvo can hold its own against the top-quality products Germany is offering across its three main prestige brands.

Volvo V40 D4 177 SE
P11D price £23,540
Model price range £19,745-£26,795
Residual value 40.3%
Depreciation £14,065
Fuel £5650
SMR £2060
VED £60
National Insurance £1657
Cost per mile 51.2p
Fuel consumption 65.7mpg
CO2 (tax) 114g/km (16%)
BIK 20/40% per month £63/£126
Service interval 18,000miles
Insurance (1-50) group 28
Warranty 3yrs/60,000 mls
Boot space min/max 335/1032 litres
Engine size/power 1984cc/177hp
Top speed/0-62mph 137mph/8.6secs
On sale July 2012
Score 8/10
Verdict Very good in most
areas, enough to give
German trio a challenge