Make the dough
Grease the bottom and sides of an 8-inch springform pan. Combine the flour, granulated sugar, yeast, and salt in the bowl of a standing mixer fitted with the dough hook. Add the milk, water, butter, and egg. Give the mixture a few turns with a rubber spatula to moisten all of the ingredients, and then mix on medium speed until smooth and shiny, about 2 minutes. Transfer the dough to a lightly oiled bowl or dough-rising container, cover the bowl with plastic wrap, and let stand at room temperature until it has doubled in volume, 1-1⁄2 to 2 hours.
Make the coating
Place the melted butter in a bowl and combine the brown sugar, nuts, and cinnamon in another bowl. Set aside.
Make the caramel
Combine the sugar and water in a deep, heavy pot. Cook over medium heat, stirring, until the sugar is dissolved. Increase the heat to medium-high and bring to a boil, occasionally brushing down the sides of the pan with a wet pastry brush to prevent the sugar from crystallizing (don’t worry if your sugar does crystallize—some crunchy bits in the bread won’t be noticeable). Boil the syrup without stirring until it turns an amber color, 5 to 7 minutes, swirling the pan occasionally for even cooking.
Remove the syrup from the heat and stir in the cream with a long-handled wooden spoon. The mixture will bubble up (thus the need for the deep pot and the long-handled spoon). Keep stirring until the caramel is smooth. Pour a thin layer of the hot caramel into the greased springform pan so that it coats the bottom of the pan. (Let the leftover caramel cool, and then refrigerate for up to 2 weeks in an airtight container; warm the caramel in a microwave oven or on top of the stove.)
Assemble the bread
Turn the dough out onto a lightly floured countertop and cut into 1⁄2-inch pieces. Dip the balls in the melted butter and then roll in the cinnamon-sugar-nut mixture. Place the balls in the prepared pan. You will have 2 layers and a few extras to place on top. Cover the cake with plastic wrap and let rise until doubled in volume, about 1 hour.
Heat the oven to 350°F. Bake until deep brown and bubbling, 35 to 40 minutes. Transfer the pan to a wire rack and let cool for 15 minutes. Then run a sharp paring knife around the perimeter of the bread, release the sides of the springform pan, and let cool for another 20 minutes on the rack. Serve warm. Caramel Monkey Bread is best served on the day it is baked.
Photo: Ditte Isager