Yes, you can use the physics simulation in Unreal Engine to have your characters physically react to being hit. You can use the physics engine to detect collisions between objects in your game and then apply physical forces to those objects to simulate realistic reactions. To implement this in your game, you can create a physics asset for your character and use that to control the collision detection and physics simulation.

To make your character play animations while being affected by the physics simulation, you can use an animation blueprint. The animation blueprint allows you to blend together different animations based on input from the physics engine and other systems in your game. By combining these techniques, you can create characters that react realistically to their environment while still maintaining their animated appearance.
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