In a large bowl, cream butter and sugar until light and fluffy. Beat in egg. Combine the flour, baking powder and nutmeg; add to the creamed mixture alternately with milk, beating well after each addition. Stir in cranberries and orange peel.
Pour into a greased 11x7-in. baking dish. Bake at 350° for 35-40 minutes or until a toothpick inserted in the center comes out clean.
Meanwhile, in a small saucepan, combine sauce ingredients. Cook and stir over medium heat until heated through. Cut warm cake into squares; serve with cream sauce.