When Windows To Go appeared with Windows 8, Microsoft finally provided a supported way to run Windows from a USB memory stick. But WinPE has been superseded by WinRE (Windows Recovery Environment). Techies could use it to start a PC and install a new version of Windows Vista, or repair a PC if Windows failed to start. It also offered Windows PE (Preinstallation Environment), which ran a minimal version of Windows from a USB Flash drive. That didn’t make enough difference to catch on, but you could give it a whirl.
A decade ago, it introduced ReadyBoost, to increase PC performance. Microsoft has tried a few ways to exploit USB Flash drives. What you need is something like Windows To Go…. At best, it might help you to get up and running after you replaced the failed hard drive, but so would keeping a back-up on an external hard drive. However, I wouldn’t expect it to work if the hard drive failed, because all the code will still refer to the C: drive. You can certainly mirror your existing 1TB hard drive to a 1TB Flash drive. You can get 3TB external hard drives – with 12 times more storage space – for similar prices. Even 256GB flash drives often cost in excess of £70, and can cost far more than that. Unfortunately, that would increase the cost dramatically.
Obviously, it would be better to use a USB 3.0 flash drive, which can read data at 100MBps or more. Speed does make a difference to usability, which is why people are moving to SSDs (~5x faster than HDDs) and M.2 drives (~25x faster than HDDs). It’s a lot slower than your 1TB hard drive (88.80/82.08), which is somewhat slower than mine (127.7/122.6).
That’s middle-of-the-road for a USB 2.0 device, where the fastest can manage about 25MBps reading and 10MBps writing data. (On this benchmark, MBps means one million bytes per second.) You very helpfully ran CrystalDiskMark when I asked, and it put the read speed at 16.28MBps and the write speed at 6.52MBps. If your 1TB Flash drive reliably holds 1TB for a year or two, then it’s unlikely to be fast.