2 3/8" unless you want to make it a bit bigger so you can square it up to the right size. Then I would start with 2 1/2" squares.
A question - If you are wanting to end up with a 12" (finished) square, you are going to need more than 8 HST, aren't you? Don't you need 64 units at 1.5"?
1.5 + 1.5 = 3"
3" + 3" + 3" + 3" = 12" (1 row = 8 hst units as does 1 column - 8 hst units)
8 x 8 = 64