We live in a cost-cutting society. People are more interested in the supermarket that sells baked beans for three pence a can than the one that has a good range of fresh organic produce. Compare your grandparents' furniture to the flat pack variety found in the average household. To grab the attention of the masses, a company must now have prices that significantly undercut its rivals. Which is how the Honda Civic Type R bowed in as the latest contender for hot hatch superiority.

The Civic's competitors must have been pretty shaken up by the headline grabbing sub-£16,000 price tag. There was worse to come though; Honda did not cut the corners you might associate with budget goods. The Type R brand was relatively unknown in the UK in 2001; we did get the sublime Integra Type R and the underrated Accord Type R, but neither car broke into the mass market. The Japanese have had Civic Type Rs for a number of years, and the cult following they have is based on a lot more than a low purchase price. As feared by Peugeot, Renault, et al the new Civic Type R was more than an exercise in clever marketing.

Numbers matter a lot in this segment. After the price, enthusiasts will no doubt take a glance at the engine power output, the 0-60 mph time, the (largely irrelevant) top speed, the kerb weight and even the size of the standard alloys. Honda must have had this in mind with 197 bhp, 6.6 seconds, 146 mph, 1200 kg and some of the sexiest 17-inch alloys ever fitted as standard to a car. No other new car came close for the same price.

Personally I would rather a bespoke CRX-like coupe body, but Honda deemed this too expensive to develop and so used the 3-door bodyshell. There is no doubt that the Civic Type R looks special, thanks to mesh grilles, Type R badging, a rear spoiler (shaped like the devil's horns) and those wheels. However, it is quite an upright design, closer to MPV than coupe. The upshot is decent interior and boot space, despite the fitment of large figure-hugging Type R seats.

Honda also fit a lovely Momo leather steering wheel and red trim detailing. Along with the white Type R dials and the titanium gear knob protruding from the dashboard, the interior is still one of the best in the hot hatch market. Though all controls are well damped and important surfaces are tactile, the Type R is not particularly well equipped, and it becomes obvious where the pennies have been saved. If you are an enthusiastic driver, this is not such an important aspect of car ownership, but it will affect showroom traffic.

The driving experience itself is a special one. This car will only appeal to, or at least be understood completely by a certain type of person. To potter around or to think of the Type R as something purely for posing in is to miss the point. To drive it at 8 tenths may also not really reveal the true character of the car. To drive it at 10 tenths however is nirvana. It wakes up and thrills the driver. Since Honda developed its terrific variable valve timing system (called i-VTEC in this Civic), most reviews centre around the engine, so let's talk about the chassis first.

It is an incredible front-wheel drive set-up, with masses of grip initially (witness Mark's shot of it cocking an inside rear wheel, in the wet!). Push the boundaries and the Civic will reward you with superb adjustability and balance. In the dry, any driver will get a thrill from driving fast on twisty roads. More committed drivers will be rewarded on and over the limit of adhesion by using the throttle and if desired left-foot braking. Note that the springs are quite stiff, though it manages to not crash through potholes. In the wet, the power takes things over a little, and either restraint or a lot of left foot braking is the only way to keep speed up through tighter turns.

Though your hand will take a while to warm up on the cold titanium gear lever, the six-speed gearbox is one of the best there is, and the odd position of the lever soon makes sense. Gripping the steering wheel is a joy, and the steering is wonderfully direct and well weighted; unfortunately the helm does lack a little feedback. The lack of feel does not stop you exploring the car's limits though. Be in no doubt that this is an enthusiast's car, which I would suspect has been developed by serious drivers.

The Civic Type R would be a brilliant car to learn the art of left-foot braking in. Once mastered, this can be used in the dry for much faster cornering speeds allied to mid corner stability, but more so in the wet, where it acts as a driver-adjustable traction control as well as bringing the rear of the car into action to counter the front-wheel driven tendency to push on under power. It truly is rewarding, and this is one of the best cars I have driven using this technique. Without it, driving fast on a wet surface is still rewarding, but it requires a lot of concentration and restraint with the throttle. We experienced wheel spin into 4th gear on one particularly greasy motorway slip road. The brakes themselves are tremendous, and have loads of bite and feel. The pedals are also perfectly placed for heel and toeing – you tend to blip the throttle on down changes just for the hell of it.

The surfeit of power leads me back to that Honda powerplant. Many people do not like the all-or-nothing character of the VTEC units Honda make, though the more recent "intelligent" VTEC aims to vary the cam timing for a wider spread of torque, as well as giving a noticeable kick at about 6,000 rpm where the higher lift cam comes into operation. There is always something special about an engine that revs to 9,000 rpm, despite a little harshness from this four-pot. It is vocal when pushing on, but civilised when you need it to be. We averaged 24 mpg over a week of driving that included about 250 miles of motorway cruising and 350 miles of hard A and B-road driving. I agree that the Civic is capable of better numbers than this, but it encourages even timid drivers to drive that little bit harder.

And so we are back to the numbers. When the Civic Type R arrived, it pretty much had the opposition licked on the figures that mattered. Sure, Honda were not very generous with the standard equipment, but the parts that mattered were present and of high quality. The establishment were rocked. The final straw was that Honda managed to do all this for a suitably tempting price. Two years later, Renault in particular is fighting back with the Clio 182, but the Civic is very much a contender. A facelifted Civic was launched early in 2004. It is claimed that the Type R version will be even quicker, and will incorporate chassis and steering modifications. With an on-the-road price of just over £16k, surely the market cannot ignore it. We will let you know as soon as we drive it later this year.