Why is it that if I put "set encoding=utf-8" in my vimrc file, plugins won't load properly?

Question

Here is my vimrc file:

call plug#begin('$HOME/vimfiles/plugged')
Plug 'vim-airline/vim-airline'
Plug 'itchyny/lightline.vim'
Plug 'kien/ctrlp.vim'
Plug 'python-mode/python-mode'
Plug 'rdnetto/YCM-Generator', { 'branch': 'stable'}
Plug 'davidhalter/jedi-vim'
Plug 'octol/vim-cpp-enhanced-highlight'
Plug 'Valloric/YouCompleteMe'
Plug 'jeaye/color_coded'
call plug#end()

set encoding=utf-8
syntax on colorscheme gruvbox
set backspace=indent,eol,start
inoremap ii <Esc> inoremap II <Esc>
set number
set langmenu=en_US let $LANG = 'en_US'
source $VIMRUNTIME/delmenu.vim
source $VIMRUNTIME/menu.vim

This is the error I get with "set encoding=utf-8", after command ":PlugInstall":

I use Windows 10

Edit: Well, interestingly enough, the problem apparently was in the picture I sent, but below the blue rectangle I put, I had the letter "á" in my path and changing that worked.

Answer 1

From :help 'encoding':

NOTE: Changing this option will not change the encoding of the existing text in Vim. It may cause non-ASCII text to become invalid. It should normally be kept at its default value, or set when Vim starts up. See multibyte. To reload the menus see :menutrans.

So either set it at the first line, or don't set it at all.