Rainbow cake...best colouring agent to use?

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I desperately want to make my little girl a rainbow cake or cupcakes for her birthday. Now Im new to the baking world and have next to none in the way of equipment. What are the basic pieces of equipment I will need to make a rainbow cake. What size cake pans will I need? Any gadgets that will make the process quicker or easier for me?
My main query about the rainbow cake though is to do with food colouring. I have liquid food colouring in my cupboard but on the bottle it says not suitable for baking. What sort of colouring am I meant to be using for it to be safe in the oven?
 
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All the recipes I've seen for rainbow cakes on Pinterest suggest using gel food coloring. The most popular color of frosting for a rainbow cake seems to be white frosting decorated with jellybeans or Skittles.
 

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