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British Chancellor of the Exchequer George Osborne holds Gladstone's red box as he poses for pictures outside 11 Downing Street in London, on June 22, 2010.BEN STANSALL/AFP / Getty Images

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 per cent in 2011, and 2.5 per cent in 2012.

In November, growth was estimated to be 2.1 per cent this year and 2.6 per cent 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 per cent in 2011 and 2.2 per cent in 2012.

On inflation, which has roared up to 4.4 per cent and more on some measures, Mr. Osborne said it would remain between 4 and 5 per cent most of this year before dropping to 2.5 per cent in 2012, still above the Bank of England's 2 per cent target.