Well, 1-1/8" is only 1.125" so it's only 0.025" bigger and if we're talking diameter then it's only 0.0125" bigger all the way around which it practically negligible - also the bezel trim on the button will cover the hole anyway. I think you are safe going with a 1'1/8" hole punch. All I've ever used to drill buttons in MDF and plywood is a 1-1/8" forstner bit and it works great.