I solved the issue. I realised that once when I was meddling with something I added by accident a single character to the beginning of the file Microsoft VS CodeResourcesAppExtensionshtmlsyntaxeshtml.tmLanguage.json
which made VSCode unable to parse it. The highlighting works now.
与恶龙缠斗过久,自身亦成为恶龙;凝视深渊过久,深渊将回以凝视…