The smallest Volvo, the new V40, is set to make a big impact, says motoring editor Andy Russell.

Volvo's V40 hatchback is the marque's smallest model but it is going to make a big impact.

With more motorists choosing smaller cars, but retaining a sense of quality and prestige, the V40 could prove the most important new Volvo since the Swedish marque shed its boxy image for characterful curves.

It's a long time since Volvo had a competitive small car with mass appeal – the C30 coupe was not practical enough while the S40 saloon was worthy but a little dull. What you really need to succeed is a hatchback – a sort of one-size-fits-all model – that can carry five people and reasonable loads.

The V40 is the most attractive small Volvo for many years and it needs to be good against the likes of the Audi A3 Sportback, BMW 1 Series, Mercedes-Benz A-Class and new Volkswagen Golf. It's a desirable sector, and very competitive.

The V40 – a hatchback rather than Volvo's V for 'versatile' estates – is clearly a Volvo but its stylish, well-proportioned design gives it its own character and should also appeal to younger customers. Already it has spawned an all-wheel drive Cross Country version which should have added appeal in rural areas.

The V40 offers tried-and-tested turbo engines – 150 and 180hp 1.6-litre T3 and T4 and 254hp 2.5-litre petrol T5 and 115hp 1.6 and 150 and 177hp 2.0-litre diesels in D2, D3 and D4.

A popular choice will be the 1.6 D2 which is fine for everyday driving and comfortably keeps up with traffic once cruising and the engine is quiet and refined, so much so that it made wind noise around the test car's back doors more noticeable.

If you want to get a spurt on you need to keep the revs up which hits economy but most of the time MPG hovered around 60 in real-world driving – short of Volvo's claim – but with a light foot I nudged 70mpg.

The six-speed manual gearbox has a precise shift but cannot be hurried but the light clutch action on my test car was spoiled by a click as the pedal came to the top of its travel.

The V40 is not as dynamic to drive as the rear-wheel drive BMW or as comfortable as the new Audi A3 but it feels well planted on twisty roads with good body control although the light steering is a little vague at speed. Even the standard suspension set-up gives a fairly firm ride but cushions bumps and lumps effectively although poorly-surfaced roads create a bit of a buzz.

Given its compact dimensions the V40 offers decent head and legroom for four large adults and you can get three in the back seat at a squeeze.

The boot is not as big as some rivals at 335 litres and the sill is quite high but, being flat-sided, it's all useable space. I liked my test car's two-tier, flexible boot floor which concertinas up in the middle, to divide the space and stop small items sliding around, or it can be removed to create a deeper boot – it's a £100 option but worth considering. Rear seat backs fold down 60/40 to create a flat load bay with the boot floor in the highest position.

The interior is pure Volvo – tasteful, well finished with lots of squidgy plastic trim where you come into contact with it and an awesomely efficient heating and ventilation system. The dashboard looks quite minimalist because there are so many buttons on the trademark floating centre console, many of them small and quite hard to navigate at first sight. A must option, and one of the most unusual, is the £350 illuminated gear knob and active TFT (thin film transistor) instruments which allow you to choose different themes and information displays – elegance, eco and performance, the latter featuring a big red-lit rev counter with digital speedo inside and a power gauge. It's easy to find the ideal driving position with a good range of seat and wheel adjustment.

The V40 offers top-notch safety kit including a good complement of airbags, electronic driver aids and Volvo's City Safety system which brakes if you are too close to the car in front. Entry ES has Bluetooth, four electric windows, alloy wheels and climate control while mid-spec SE adds cruise control, steering wheel-mounted controls, keyless start and upgraded trim. SE Lux features leather upholstery, LED running lights and active headlights. New to the line-up are the sportier R-Design and R-Design Lux models.

The V40 may be the new small Volvo but it has not lost sight of what the brand stands for. It's stylish, safe and secure – everything people expect of the new generation Volvos – but in a smaller package and in the current climate should appeal to loyal customers as well as bringing new ones of the brand.