Hiya
I think the UK job market is very similar to what you describe also..
I graduated with a degree in languages and business in 2001, and was struggling to find a job then. I was doing temporary work before luckily being succesful in a job using my languages (although i don't enjoy using my language skills lol).
Since then Ive been made redundant because my job was outsourced to India last year.. (don't get me started on that one).. and since, i've been in the process of retraining to enter a new career of psychology/mental health. With no real qualifications in mental health/psychology it's been a very difficult task to find a job.. Again, i've been doing temporary work for one year now.. somehow by a total stroke of luck I found a job in a Mental Health department doing their administration. It isn't what I want to be doing with my life eventually, but it's definitely been a good insight in to the job and i've made excellent contacts in the field.
In fact one of the consultant psychiatrists who I work with has introduced me to another job, "therapy assistant" - he put in a good word for me at this company, and I've started doing a bit of work for them occasionally. I definitely think there's a lot in this whole "it's not what you know, it's who you know" business.
After one year of searching, and many job applications and interviews, I finally was offered a permanent job on Friday! It's not exactly what I want to be doing career-wise, but it's a step in the right direction, working for the right company..
I think the problem with most jobs is that they say you need experience in the job. But then, how can you get experience if you can't get a job!? For me, it's been a matter of funding myself to do courses, e.g. evening courses.. this has shown them that i'm keen, skilled and dedicated to this career, etc. Also, networking has proved very useful to me.. it's amazing how small the world is when you get talking to people. And getting this "experience" that is so much asked about can be tricky, but if there's any volunteer agencies or anything in the area, maybe give them try. If you do a good job with the temporary placements you're on, the companies themselves may offer you a permanent job (one did me, but i turned them down!).. and they can give you good references for any jobs you do apply for.
Sorry for the ramble there, but i do agree that the job market is very competitive. It's hard to prove that you're a cut above the rest... and i guess it's something that we need to believe too. I don't know about you but I hate trying to sell myself on paper and i hate particularly hate trying to sell myself as "the best for the job" in interview.. i seem to fall to pieces! But it can happen.. i'm proof! Keep at it, and one day things will all slot in to place