Distance almost never fixes things because then the person has no idea what they’ve done. Distance is avoidance. The way to fix things is by being assertive, so I definitely think you should address your concerns with him and see what he says/does. If he reacts in an understanding way and then changes his behavior, that shows that he respects you and really is a good guy at heart.  If he reacts very badly in the way that you’ve seen him react with others, that should send a clear message of who he actually is. This includes if he blows up at you and then apologizes later, that’s still a big red flag.

I think it would be healthy for both of you to back off a little because, not only will your fiance be relieved (even if he won’t tell you that directly), I don’t think your friend is ever going to find himself in a healthy relationship with someone he truly likes as long as your friendship keeps the dynamic it currently has, so it would be good for him too if you two backed off from the physical touch and flirtiness, and it’ll probably seem weird at first because it’s a dynamic change, but I can see it being better for everyone involved.

I think it also makes sense that he’s basically with her just so his family will stop bugging him, but that still doesn’t make it okay for him to act the way he has been. Hopefully he will change that behavior.