Mr Rees-Mogg, MP for North East Somerset, insisted Mrs May must prepare Britain for a possible financial crash if the UK leaves the EU with no agreement, or risk losing public confidence in her government.
Writing for the Daily Telegraph, he warned how post-Brexit Britain could slump into a downward spiral, recalling how Black Wednesday left UK’s financial markets in utter turmoil.
In 1992, then-Prime Minister Sir John Major was forced to withdraw the pound from the European Exchange Rate Mechanism, after the currency failed to stay within its agreed limit.
This cost the UK’s economy an estimated £3.3 billion pounds in losses, sending support for Mr Major’s Government and the Conservative Party to an all-time low.
Opinion polls turned against the Conservative party, leading in 1997 to the heaviest defeat since 1906.
Mr Rees-Mogg said: “Theresa May, the Prime Minister, risks putting the Conservative Party in the same position again.
“There is a chance that we will leave the European Union without a withdrawal agreement.
“This is a perfectly manageable proposition. Indeed, with the right economic policy it would be a successful one.”
Explaining how Black Wednesday destroyed support for the Conservative Party, he added: “None of this did the Conservatives any good.
“From October 1992 the opinion polls turned against the party, leading in 1997 to the heaviest defeat since 1906.
“The economic resurgence was not credited to the Government because it came about in spite of, rather than because of, the Government’s policies.
“John Major had nailed his colours to the wrong mast in search of the European ideal and the electorate had no intention of either forgiving or forgetting.”
This week, Mrs May failed to make significant progress in Brexit negotiations during her meeting with EU leaders in Brussels.
However, she remains “optimistic” on reaching an agreement with the EU before Britain leaves the bloc on March 29, 2019.
Downing Street said in a statement: “She acknowledged that there were a few significant issues that were still outstanding, but said that the very real sense she had from leaders around the table at the council was that they wanted to reach a deal as soon as possible this autumn.
“She emphasised that both sides wanted to have our future relationship in place by the end of December 2020 so that the backstop never needed to be used, but that the negotiating teams would work intensively on this to find a way forward.”