It can't measure fuel economy directly. The ECU only 'sees' road speed.

The ECU estimates fuel consumption by estimating fuel flow. The ECU cannot measure fuel flow directly, but knows how long the specified pulse width (how long the injectors stay open) of the injectors is. Since the flow rate of the injectors is known (gallons/hour) , the flowrate is multiplied by the pulse width (hours) and the speed (miles/hour) is divided by this figure to derive miles per gallon.

If the flow rate of any of the injectors is out of specification, then the figures would be wrong. Normally, the trip computer is fairly accurate nowadays.

Low profile tyres are usually fitted to larger rims so the overall tyre diameter isn't usually that different.

Maybe the problem is that you bought the car 10 years before it was manufactured! :)

Most of these in car "computers" are very simple affairs, especially the mpg readouts. In this case you have something that measures the hypothetical instant mpg based on a few inputs - e.g. road speed, engine speed, gear and engine load (which will be something simple based on how far the opedal is pressed). The "trip" mpg will really only be a summary of that based on samples every (say) 100 metres.

Treat it for what it is, a guide. If it says you are doing 50mpg you are burning less fuel than if it says you are doing 40mpg.

There of, of course, some very sophisticated efforts that work on flow measurement, actual distacnce travelled and the like. VAG don't fit them.

The fuel trip on my wife's Roomster 1.4 diesel regularly over-reads, by between approx 3 to 8mpg every fill. Though it is usually by 4 to 5mpg, with the odd fluctuation.

I bought the wife a 2006 Fabia 1.2 Sport in 1996 with only 300 miles on the clock.

Does it have a sticker on the back which says "My other vehicle is a Tardis" ?