I don't know whether to laugh or cry when I hear American colleagues bemoaning the fact that fuel costs are running at about one dollar seventy per gallon. Downsizing from a monster truck to a mere Humvee might be their idea of saving the planet but here in the UK, we have a very different perspective on cutting fuel bills which has resulted in cars that are not only very economical but also huge fun to drive. The Citroen C2 1.4-litre HDi is a case in point.

Wind the clock back a few years and the concept of a city tot with a diesel engine offering anything other than unmitigated misery would have been laughed at. The diesel engine was long viewed as an agricultural thing best used by commercial vehicles and farm machines but modern diesel units have been developed to such an extent that petrol powerplants are now riding their coat tails and stealing ideas to give better performance, refinement and economy. Take the 1.4-litre HDi diesel fitted to this C2 as an example.

With a mere 70bhp on tap, the C2 HDi will still top out at the other side of the ton and get to 60mph in 13.2 seconds. More importantly, it's respectably quick off the mark to 25mph or so, an all-important factor in stop start city conditions. Much of that is down to the abundant torque. The 111 lb/ft produced by the HDi diesel engine gives the tiny C2 more punching power than, say, a 1.6-litre Audi A3. Yet despite being this light on its feet, the C2 HDi returns a staggering average fuel return of 68.9mpg and emits only 108g/km of carbon dioxide. This thing is cleaner than the soles of Mrs Prescott's shoes. On a gentle run, it's easy to see 78 miles per gallon of diesel and given that the fuel tank can hold over nine gallons, a fill to the brim that'll cost you around £32 gives you a maximum theoretical range of over 700 miles.

That's not the only place where the C2 HDi saves you money. Insurance varies between Group 2 and Group 3 which will doubtless appeal to young drivers as will the very affordable upfront prices which start at just £9,410 for the entry-level Vibe model rising through £10,595 for the plusher Rhythm before topping out at £11,095 for the sportier-looking VTR version. Few cars can get near the 27.3 pence per mile running costs of the entry-level variant. To put that into perspective, a Ford Focus 1.6 will cost 42 pence per mile to run and the Citroen also retains more of its value over a three year ownership period; handy for the time when you want to trade up.

"Despite being light on its feet, the C2 HDi returns a staggering average fuel return of 68.9mpg"

Although it shares its chassis, drivetrains and a number of body and interior parts with the C3, don't think of this car as merely a scaled down version of Citroen's spherical supermini. The styling marks a different direction with a C3-style bulbous nose allied to a far edgier, angular back end. Although to some it might look like the results of two design studies fused at the door pillars, it's certainly distinctive. The side windows adopt a staggered line while the rear haunches blister out in a purposeful fashion and the latest models can be identified by a clear section in the tail-light clusters.

The C2 maximises its use of available space very effectively. Despite being even shorter than a Saxo, it's easily able to seat four in comfort. Lessons have been learned from the reception given to the C3 interior and the C2 adopts many of the funkier styling touches such as the ventilation system and the bar rev counter and introduces a few of its own. Interior materials quality has been improved with the introduction of the upmarket dashboard also found in the C3 featuring high-grade plastics and silver detailing. There's a wide range of trim choices from sober monotones right up to the most extrovert two-tone designs.

The steering adjusts for rake and reach in all versions while plusher trims also get a height adjustable seat. Few will have any cause for complaint given the amount of space in the front of the cabin as it feels no smaller than the C3, a car already renowned for its spaciousness. Like the C3, the C2 gets a can holder ahead of the gear lever as well as generously proportioned door bins that can accommodate a 500ml bottle of pop. Access to the rear isn't bad and Citroen have displayed admirable pragmatism in failing to pretend that the C2 is anything other than a four seater. So many small cars cram three belts in across the back and end up trussing occupants up like a leg of lamb but the two rear seats of the C2 are well sculpted and respectable in terms of knee and shoulder room although taller passengers may feel the sloping roof impinges on their coif.

Opt for upspec models and the rear seats individually slide, recline, fold and tumble. This allows the owner to optimise luggage or passenger space by sliding the seats on runners but in order to fold the rear seats fully flat, the front ones need to be run a long way forward, precluding this possibility for long legged drivers and front passengers. All versions nevertheless get a tailgate that splits into two sections to ease loading in tight spots. With a number of safety features that include twin front and side airbags on all models and power assisted steering across the range, the C2 looks a decent buy. Sophisticated electronics functions like automatic wipers and headlamps, rear parking sensors and folding rear mirrors will also be available if you're prepared to dip into the wallet.

Next time somebody mentions American fuel prices, just think of the cars they end up driving and compare it with the Citroen C2 HDi. It seems we Europeans have managed to snatch an unlikely victory.