Britain's economy will grow more slowly this year than initially hoped, finance minister George Osborne said on Wednesday, citing new forecasts from the government's fiscal watchdog.

He said the economy was projected to grow 1.7 percent in 2011, and 2.5 percent in 2012.

In November, growth was estimated to be 2.1 percent this year and 2.6 percent in 2012.

The government uses forecasts from the Office for Budget Responsibility, an independent agency it created shortly after taking office in May last year to make economic forecasting more credible.

The consensus of economists polled by Reuters is for Britain's economy to grow 1.6 percent in 2011 and 2.2 percent in 2012.

On inflation, which has roared up to 4.4 percent and more on some measures, Osborne said it would remain between four and five percent most of this year before dropping to 2.5 percent in 2012, still above the Bank of England's 2 percent target.

(Reporting by Christina Fincher, Editing by Mike Peacock)